Among recent developments potentially affecting how businesses manage their climate change risks, on March 1, 2012, Senators Bernie Sanders (I-VT) and Sheldon Whitehouse (D-RI) hosted a press conference with representatives of leading insurance companies to discuss the costs of climate change on business and taxpayers. Vermont and Rhode Island experienced extreme flood events in 2011 as a result of Hurricane Irene, which killed at least 45 people and caused more than $7 billion in damage. According to the sustainability advocacy group, Ceres, property and casualty insurers experienced $44 billion in losses last year, attributable in part to more severe and unpredictable weather conditions.
According to a statement made at the press conference, annual weather-related claims increased from about $3 billion a year in the 1980s to approximately $20 billion annually by 2010. Mark Way, head of Swiss Reinsurance Company Ltd., expressed concern that a "warming climate will only add to this trend of increasing losses," asking Congress to act now regarding greenhouse gas emissions.
This sentiment was endorsed by Pete Thomas, chief risk officer at Willis Reinsurance, and Franklin Nutter, president of the Reinsurance Association of America. Speaking to this point, Mr. Nutter concluded that "[f]rom our industry's perspective, the footprints of climate change are around us and the trend of increasing damage to property and threat to lives is clear." As Senator Sanders put it, "Perhaps no industry better understands the impact of global warming than the insurance industry whose job it is to analyze risk."
In addition to providing representatives of the insurance industry with an opportunity to press for regulatory changes that may help insurers manage these risks, the event highlighted the tension between business and insurance carriers over identifying and attempting to quantify and cover climate change risks. Climate change risks carry enormous complexities, ranging from causation to predicting future impacts and the potential costs of those impacts, including business interruption costs due to supply issues, severe storms and flooding, and sea level changes. As part of their own risk management planning, business leaders will need to stay alert to the developing world of insurance coverage of climate change risks.