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  February 15, 2018

Climate Change Costs Insurance Companies Billions, And Price is Rising

Insurance claims due to climate change-related disasters reached a record $135 billion in 2017. That should be a big wake-up call to the insurance industry, says Carbon Tracker CEO Anthony Hobley
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Anthony Hobley is the CEO of London-based think tank Carbon Tracker. Carbon Tracker carries out in-depth analysis on the impact of the energy transition on capital markets. Anthony has been CEO since 2014, before this he was a Partner and Global Head of the Sustainability & Climate Finance Practice at global law firm Norton Rose Fulbright.


D. LASCARIS: This is Dimitri Lascaris for The Real News, reporting from Montreal, Canada. According to a recent analysis by Munich Reinsurance Company, in 2017, climate and weather disasters broke insurance records with insurance claims due to natural disasters reaching a record $135 billion. The world's largest insurance firm said that the United States, which faced three major hurricanes last year and multiple major wildfires, made up nearly 50% of global insured losses compared to its average rate of 30%. The 2017 hurricane season caused $215 billion in damages worldwide, making it the costliest hurricane season on record.

How is the insurance industry dealing with effects and risks of climate change? Could it become harder for companies and individuals to have insurance in the face of increased risk due to human-caused global warming? With us to discuss this, I'm very pleased to be joined again by Anthony Hobley, CEO of think tank Carbon Tracker. Carbon Tracker carries out in-depth analysis on the impact of energy transition on capital markets. Thanks for joining us again, Anthony.

ANTHONY HOBLEY: You're welcome.

D. LASCARIS: What I'd like to talk to you first about, Anthony, was 2017, the climate-related losses. Did these losses, broadly speaking, in your view, shake up the insurance industry? And if so, what are the major impacts that these losses have had on insurance industry practice and policy?

ANTHONY HOBLEY: Well, I think it has. I think it's been a wake-up call. I mean, the insurance industry has gotten incredibly good and very sophisticated at understanding and quantifying risk and setting premiums accordingly. So they're much more resilient than they were several decades ago in the face of major natural disasters and things like the [inaudible 00:01:51] claims and asbestos claims that nearly brought the Lloyd's market down, for example, several decades ago.

But even with that, I think it makes them more aware of the changing climate and the increased frequency and what's likely to come, so they're a lot more, I think, focused on it. That means they're going to be better at charging for it and passing that cost on to the companies, particularly if they begin to see a realistic chance that there may be liability associated with that and the companies who sell very carbon-intensive products.

D. LASCARIS: In particular, in the United States, is the availability and cost of insurance ... has it changed dramatically over the past three years? Around three years ago, Mark Carney gave a major speech relating to the effects of climate risk on the insurance market and warned that insurers were heavily exposed to those risks. And so in the U.S. in particular, have you seen much change in the injury since that time?

ANTHONY HOBLEY: Well, I think he was right to flag this up. I think generally insurance is still available, but there are some signs that insurance may not be available to all types of assets, and particularly maybe more of the government-backed export guarantee type insurance for particular types of projects like coal. We've seen a recent announcement from the Lloyd's market about that, so I think these are all very significant signs of things to come.

Of course, there's two types of risk here. There's the exposure to business disruption and the loss of markets because of, for example, with oil, gas, and coal demand destruction by competing technologies don't require oil, gas, or coal, and of course damage to the facilities themselves as we experience more extreme weather events as we saw in the major flooding and storms in Texas and in that regard. I mean, I think all of this is going into the insurance models and is likely to result in increased costs and possibly even, as we're beginning to see, withdrawal of cover altogether. Exactly what happened in many cases, in certain areas of flood, that is what happened several decades ago with regards to contamination cover unless that was specifically purchased.

D. LASCARIS: Do you think that the lexicon of the insurance industry is going to have to change? For example, by redefining the notion of an act of God?

ANTHONY HOBLEY: Well, they were looking at it. Insurers are incredibly good at understand risks and then adjusting coverage in policies in response to the ... Two or three decades, four decades ago, you could buy sort of blanket insurance that included contamination, and you could call on that policy years later if the contamination was caused during the period of that policy.

First, of course, the policies then got changed so it was events occurring and then they limited contamination and similar types of loss altogether so you had to buy bolt-on policies that had various particular specific conditions and due diligence associated with them. I think a lot of insurers are beginning to look at that now and how they define coverage, and particularly if you have a facility that is in an area that's particularly exposed to flooding or tropical storms, hurricanes, et cetera.

They are keeping a very close eye on the evolution of legal liability because it doesn't matter where you are if you've been selling products that are a major culprit, a major oil and gas company, coal company, or other company selling carbon-intensive products. The liability, should those legal principles ever be developed that far, could be pretty significant.

D. LASCARIS: Well, we've been speaking to Anthony Hobley, the CEO of Carbon Tracker, about the impact of last year's great climate-related losses on the insurance industry. Thank you very much for joining us today, Anthony.

ANTHONY HOBLEY: You're welcome. Thank you.

D. LASCARIS: This is Dimitri Lascaris reporting for The Real News Network.


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