• picture
  • picture
PRI's Environmental News Magazine

GLOBAL WARMING & INSURANCE

Air Date: Week of June 20, 1997

Devastating floods in the midwest; a catastrophic tornado in Texas; paralyzing snow-falls in the Dakotas. These are only a few of the recent weather disasters we’ve seen this past year. And now scientists are telling us to get ready for another spate of powerful and costly hurricanes. Climate researchers say these weather extremes are becoming more common; and that they may be caused by human induced global climate change. Insurance firms, which pick up the tab for storm damage are taking notice, as Frank Koller of the Canadian Broadcasting Corporation reports.

Transcript

CURWOOD: Devastating floods in the midwest. A catastrophic tornado in Texas. Paralyzing snowfalls in the Dakotas. These are only a few of the recent weather disasters we've seen, and now scientists are telling us to get ready for another spate of powerful and costly hurricanes. Climate researchers say these weather extremes are becoming more common, and that they may be caused by human-induced global climate change. Insurance firms, which pick up the tab for storm damage, are taking note, as Frank Koller of the Canadian Broadcasting Corporation reports.

(Motors -- vents?)

NEALIS: Jeff, whereabouts was the water initially coming in, and when did you notice it coming in?

RABB: Ten o'clock two weeks ago, and the water was coming in; if you come down here, Kevin, I'll take you. There's a crack in the wall, and the water was in fact coming in through that crack in the wall...

KOLLER: In the underground parking garage of a 20-story apartment building in Winnipeg, Manitoba, Jeff Rabb shows his insurance agent Kevin Nealis the damage floodwaters caused last May.

RABB: It was coming out through this stressed joint in the floor, and it was also pouring up through the sewer...

KOLLER: This is Kevin Nealis's second visit to the garage to settle a claim for structural damages that nearly forced a complete evacuation of the building. Luckily for this insurance company, the building manager was able to keep most of the floodwaters out. So the damage, and the claim, will be limited. But Kevin Nealis says that as claims for damage from floods and other severe weather events grow more frequent, his industry faces tough decisions.

(Motors continue)

NEALIS: As far as insurers are concerned, the repetitive occurrence of flood events and whatnot is probably going to result in the total elimination of the availability of that coverage, and the insurance industry has to react in certain ways to make sure we do whatever we can to prevent the effects of a major loss like this.

(Winds)

REPORTER 1: The hurricane sounded like an artillery barrage as it hit the Florida coast with awesome power.

REPORTER 2: Millions of Bangladeshes along the southeast coast had nowhere to hide when the cyclone swept in from the Bay of Bengal. It whipped up tidal waves.

REPORTER 3: In central Saskatchewan, they're calling it one of the worst storms in years. Heavy rain and strong winds...

KOLLER: Storms, hurricanes, and floods. Killing thousands and costing billions annually. Normal? It's not. It's getting worse. And it's costing insurance companies more each year. Gerhard Berz is head of climatology for Munich Reinsurance in Germany. Reinsurance firms are companies that insure insurance companies, and Munich Re is the world's largest. Gerhard Berz.

BERZ: Just to give you an idea of the, of the size of the trend, if you compare the disaster losses of the last 10 years, from '87 to '96, with the 60s, we find that the number of disasters has increased by a factor of 4. The economic losses increased by a factor of 8, and the insured losses by a factor of 15. So this is really dramatic.

KOLLER: Here in North America it's a similar story. More hurricanes, hail storms, tornados, late snows, causing more and more damage that the insurance industry has to pay out in claims. Over the past decade, climatologists in the insurance industry have been searching for an explanation why weather-related disasters have become more frequent. Gerhard Berz, head climatologist for the world's biggest reinsurance firm, has seen enough to believe that global warming is to blame, and that the world's weather is going to get a lot worse as a result.

BERZ: Up to now I think we have no real proof that the environment has become already more dangerous. But in my opinion, there is no doubt that we will see a dramatic increase in the future for us as an industry. We cannot wait for any final proof whatsoever.

KOLLER: The insurance industry, unlike many others, doesn't need proof. It operates on risk and probability. Problem is, the industry's finding it harder and harder to predict when bad weather may strike, or how bad it might be. That makes it hard to set premiums, and it threatens the industry with expensive surprises. So if curbing global warming might help cut costs, it's understandable the insurance industry is very interested. During the past 15 years, the relationship between global warming, climate change, and greenhouse gases, has spawned often bitter debate in scientific journals and international meetings. The 1992 Rio environment conference, for example. The fossil fuel industry, especially coal and oil, says there is no proof the Earth's temperature is on the rise, that extreme weather is increasing, or that the 2 might be related. The insurance industry argues that skyrocketing damage claims are all the proof its needs. Angus Ross heads the Canadian office of SOREMA, a huge French reinsurance company.

ROSS: As an industry we're probably in the front line of paying for any damages which arise out of these extreme events. So we believe we cannot quite simply sit back and wait till absolute proof is there, otherwise you'll be in the same position as we're seeing with the tobacco industry and cancer.

KOLLER: Earth scientist Jeremy Leggett says changing weather threatens to topple the insurance industry.

LEGGETT: If a bad hurricane hit Miami, if a typhoon hit Tokyo, if one of these drought-related wildfires made it into an urban center in California, say, that would wipe out the entire global reserve of the industry.

KOLLER: Jeremy Leggett, who once worked in the oil industry, spent 6 years at Greenpeace trying to convince insurance executives that global warming threatened their survival.

LEGGETT: The entire global property catastrophe industry keeps just over $200 billion in reserves for all payouts, catastrophe payouts, in one year. Now in principle, we could wipe that out with 2, maybe 3 events.

KOLLER: For insurance executives, the possibility of a global collapse of their industry is frightening. Some of those executives, such as SOREMA Canada's Angus Ross, say it's time to take action to prevent weather-related disasters by curbing greenhouse gases. That means stepping into the political limelight, where the industry has 2 areas of influence.

ROSS: One of them is the public. And if premiums go up or coverage reduces, and it all comes out of the individual's pocket, then I think the impact of climate change is going to come home very, very clearly to the public. And they will start putting pressure on governments. We also have a worldwide possibility of putting pressure on governments. In Rio, the developed nations made a commitment to reduce their greenhouse gas emissions back to 1990 levels by the year 2000. Canada is going to fall short of that by some 9 to 13%. That, quite frankly, is unacceptable.

(Dramatic music)

KOLLER: But it's not as if every insurance company accepts that global warming is a problem.

(Dramatic music continues)

LEGGETT: When you go to Florida and you see still, even after the lessons of Hurricane Andrew, houses being built right on the beach with pretty dismal adherence to building codes, you wonder what's going wrong. It's as though society's setting itself up for a major disaster, and a spectacular denial, really.

KOLLER: Most American firms still act as if nothing new is happening and certainly are not speaking out in public. Jeremy Leggett argues that's because of the influence of the coal and oil lobby in the US. This spring in Florida, Jeremy Leggett spoke at a conference organized by Employers Re, the largest American reinsurance firm. Employers Re is owned by GE Capitol, a company manufacturing equipment that burns coal and oil.

LEGGETT: At least 50% of the people on the speakers list were the worst kind of skeptic scientists on the payroll of the oil industry and the coal industry. This couldn't happen in Europe. I mean if that had been a European conference, we would have spent the entire day talking about how to build markets in the clean energy technologies. There in Florida it was some kind of weird tennis match, with US government scientists and others saying we have a big problem here on the one hand, and on the other hand people from the coal industry saying this is not a problem and we should -- to quote one speaker -- "get down on our knees and thank the Lord that America has 200 years worth of coal to burn." This is lunacy.

KOLLER: The fossil fuel industries, the sectors most threatened by talk of conservation, insist that until more research is done it's a waste of everyone's money to cut back greenhouse gases. And according to Henry Hengeveld, they've used a lot of their own money and their substantial political clout to block efforts to stop global warming. Henry Hengeveld is chief science advisor on climate change for Canada's Ministry of the Environment. And now, says Henry Hengeveld, the powerful voice of big European reinsurance companies could finally make a difference.

HENGEVELD: We haven't really until recently had a key player to defend the position of the future generations.

KOLLER: Is that what the insurance industry might become?

HINGEVELD: They're risk management experts. And they've said, on the basis of what we're seeing, we cannot afford to take the risk. This is climate change, and hence they have introduced I think a very key and legitimate part into the debate, which would tend to discount, if we don't have an advocacy group like that.

KOLLER: In the end it's important to remember why insurance companies are now getting interested in global warming. SOREMA Canada's Angus Ross says it all comes down to profits.

ROSS: The insurance industry is not a charitable institution. If the claims go up, then either we have to move up the premiums, or else we reduce the coverage. It all comes back to the public, the policyholder. When we explain to them why the costs are going up, they will then be able to put pressure on the government and something actually will be done regarding the greenhouse gas emissions. And it will benefit both of us.

KOLLER: Of course, even the most concerned industry executives admit that it will be years before greenhouse trends will be reversed. For Living on Earth, I'm Frank Koller in Ottawa.

 

 

Living on Earth wants to hear from you!

P.O. Box 990007
Prudential Station
Boston, MA, USA 02199
Telephone: 1-617-287-4121
E-mail: comments@loe.org

Donate to Living on Earth!
Living on Earth is an independent media program and relies entirely on contributions from listeners and institutions supporting public service. Please donate now to preserve an independent environmental voice.

Newsletter
Living on Earth offers a weekly delivery of the show's rundown to your mailbox. Sign up for our newsletter today!

Major funding for Living on Earth is provided by the National Science Foundation.

Committed to healthy food, healthy people, a healthy planet, and healthy business.

Innovating to make the world a better, more sustainable place to live.

Kendeda Fund, furthering the values that contribute to a healthy planet.

The Grantham Foundation for the Protection of the Environment: Committed to protecting and improving the health of the global environment.

Contribute to Living on Earth and receive, as our gift to you, an archival print of one of Mark Seth Lender's extraordinary hummingbird photographs. Follow the link to see Mark's current collection of photographs.