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Insurance companies might not come to mind as key environmental advocates, but they have a vested interest in climate change: billions—if not trillions—of dollars. As sea levels rise, storms gain force and even as agricultural patterns change, insurance companies will have to shell out more and more cash to cover losses. Hurricane Ike, which struck the Texas coast in 2008, cost insurers in that state $6.6 billion, according to a report by The New York Times. Hefty price tags get passed along to consumers, taxpayers and investors alike.
But a new industry survey by the National Association of Insurance Commissioners (NAIC), a nationwide advisory organization, aims to ensure that insurers are taking a long, hard look at climate change and what it means for their bottom line.
"Once they're aware of the risk," says Pennsylvania Insurance Commissioner Joel Ario, "they'll mitigate it." Mitigation in this case doesn't just mean upping premiums or dropping coverage, but actually working to reduce climate change overall. Just as insurance companies helped to make workplaces safer (not because they're altruistic, rather because it makes good business sense—lower risk cuts costs), they "can help foster improvements in global warming," says Peter Kochenburger, executive director of the Insurance Law Center at the University of Connecticut School of Law.
The survey covers eight topics—from what insurance companies are doing to decrease their own emissions to what computer modeling they're using to assess climate-related risk. "These are legitimately good questions to ask," says Kochenburger. The deadline for the first round of surveys from major insurers (those with more than $500 million in premiums) is May 1, 2010; the NAIC plans to expand the survey annually. Responses will be made available to the public by summer 2010.
What will a better picture of climate change risk mean for consumers? "It will mean higher premiums, possibly, depending on new risks," says Ario, also chair of the NAIC's Climate Change and Global Warming Task Force who spearheaded the survey. But he adds that some of the changes "will create new opportunities for possibly better rates."
And money talks. "Insurance can make a really big difference in how people act," Kochenburger says. Because rates and policies seep into so many facets of life—from health to business—the insurance sector actually acts as a quasi-regulator, he says. Insurance companies can, for example, offer incentives for drivers who drive less and who own cars that get better mileage. The industry will also begin favoring businesses that use alternative energy and "buildings that are less susceptible to power outages and [therefore] business disruption," Ario explains.
The NAIC develops model laws and regulations, which states can choose to enforce. Kochenburger believes most insurance companies will participate in the survey, which doesn't require hard figures or terribly detailed reports. In the meantime, he notes, "You can look at insurance companies as a useful tool and a useful ally in climate change" because a greener, more stable global climate will mean more green for them.