Could Climate Change Bring Down Insurers?

We know all too well what happens when insurers like AIG overexpose themselves to Wall Street’s impossible gambles. What happens when the insurance industry plays the odds on climate change? We don’t really know, since the $16 trillion global industry hasn’t fully revealed its exposure to the potential impacts of environmental meltdown. Even without hard numbers, it’s easy to see how things could go very badly for them—and their customers—as the weather gets weirder and wilder. (A recent report found that rising sea levels could cause $100 billion in property damage this century in California alone.) Some European insurers have been been worried about this scenario for nearly 20 years; in 1990, the head of Swiss Reinsurance warned that “if the feared climate change is confirmed, it will obviously stretch the insurance industry to is limits.” And that was back when we were still at 350 ppm.

American insurers have been more nonchalant about confronting climate change. It looks like that’s about to change.Two days ago, the National Association of Insurance Commissioners decided to require major US insurers to submit climate-risk reports starting next year. Companies will have to disclose how they’re altering their risk-management models to account for climate change. Firms don’t have to reveal proprietary or sensitive information, which may limit just how much hard data we get. Nonetheless, the green investment group Ceres is hailing the new rules as a victory. And as the Wall Street Journal notes, this could inspire insurance companies to come up with profitable ways to encourage carbon reductions: “One example: auto insurance with premiums based on the number of miles a person drives. Such policies would prod consumers to drive less, curbing their vehicles’ carbon emissions.” Hopefully, insurers will also look for ways to make their carbon-spewing corporate clients pay a premium on their premiums.