As much of the Southeast U.S. is still cleaning up from Hurricane Matthew, the country’s 13th billion-dollar weather disaster this year, a new Ceres report ranks the nation’s largest insurance companies on their responses to escalating climate risks, including severe weather events. The report finds that while more U.S. insurers are improving their disclosure and management of climate risks, most are still giving it minimal attention, both in terms of risks and opportunities.
The report, Insurer Climate Risk Disclosure Survey Report and Scorecard: 2016 Findings & Recommendations, ranks property & casualty, life & annuity, and health insurers that represent over two-thirds of the total U.S. insurance market by direct premiums written. The companies were evaluated on five core themes, including governance, climate risk management, the use of catastrophe modeling or other modeling to evaluate and manage risk, greenhouse gas management and stakeholder engagement. The report is based on company disclosures in response to a climate risk survey developed by the National Association of Insurance Commissioners (NAIC).
"As devastating, deadly events like Hurricane Matthew remind us, insurance companies are on the front lines of extreme weather events and other climate-related risks, yet in too many cases, they’re still giving the issue short shrift,” said Mindy Lubber, president of Ceres, a nonprofit sustainability group that works with businesses and investors on climate change and other sustainability challenges. “Since our last report in 2014, the number of insurers receiving high scores has more than doubled – from 9 companies to 22 – and that is welcome news. But too many insurance companies are still ignoring the issue, especially when it comes to engaging on climate policies that would reduce the pollution causing climate change in the first place.”
“I’m encouraged by the results of this survey, particularly by the quadrupling of improvement by U.S.-based companies,” said Washington State Insurance Commissioner Mike Kreidler. “That said, I am concerned that the vast majority of health insurers are largely unprepared to address the risks posed by climate change. With rising health care costs, health insurers would be well-served to look at the risk climate change poses to their business lines and investments.”
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“This thorough analysis of insurance company survey responses continues to be a valuable tool in the discussion about climate change and its impact on the insurance industry,” added California Insurance Commissioner Dave Jones. “I am particularly encouraged by Ceres’ identification of notable improvements in disclosure quality from both property and casualty insurers as well as life insurance companies. Insurers and regulators need to consider climate risk and climate change and their potential impact on reserving, underwriting, investments, and business operations. “
The companies’ survey responses were ranked based on a four-tier scoring system: "High Quality," "Medium Quality," "Low Quality" and "Minimal." The 22 companies earning the High Quality designation included 13 U.S. insurers, up from only two U.S. insurers in 2014.
Insurers earning high marks for climate risk reporting included:
- ACE Ltd. Group
- AEGON US Holding Group
- Allianz Insurance Companies
- American International Group (AIG)
- AXA Group
- Chubb Group of Insurance Companies
- FM Global Group
- The Hartford Financial Services Group, Inc.
- John Hancock
- Liberty Mutual Group
- Lincoln National Group
- MetLife Group
- Munich Re Group
- Nationwide Corp.
- Prudential of America
- Swiss Re Group
- Sun Life
- Tokio Marine Holdings, Inc.
- Travelers Group
- WR Berkley
- XL America
- Zurich Insurance Group
Most of the top-ranked companies – 16 of the 22 – are property & casualty insurers, which are directly exposed to climate risks through policies they write for homeowners, vehicles and businesses. The other six top-ranked companies are life & annuity insurers. Life & annuity insurers hold roughly two-thirds of the U.S. insurance sector’s total cash and invested assets. These trillions of dollars in holdings could be affected by changes in policy, technology and physical risks during the transition to a lower-carbon economy.
64 percent of the insurance companies evaluated overall scored in the Low Quality or Minimal disclosure categories. Health insurers, in particular, were especially weak in their understanding of climate risks, despite growing scientific evidence on the health impacts of climate change. No health insurers earned a High Quality disclosure rating, and only four earned Medium Quality ratings, while 89 percent of the health insurers offered Low Quality or Minimal disclosure.
Ceres’ report includes recommendations for insurance companies. It urges all insurance firms to:
- Elevate climate risk leadership to the board and C-suite levels;
- Consider climate and carbon risks in investment portfolios;
- Engage with key stakeholders on climate risk and the benefits of policies that will strengthen climate resiliency and reduce carbon pollution.
- Integrate climate risk into enterprise risk management frameworks, and;
The report recommends that insurance regulators, for their part, enhance the climate risk disclosure survey and continue to expand mandatory climate risk reporting for all insurers.
“As a company in business for more than 200 years, we understand what it takes to be sustainable,” said David Robinson, general counsel and head of the environment committee for The Hartford. “We are committed to mitigating climate change and decreasing our carbon footprint. Between 2007 and last year, The Hartford reduced energy-related greenhouse gases by 57 percent, and the company is working to continue that trend going forward.”
“We include environmental, social and governance considerations in our investment analysis to ensure we manage these risks appropriately,” said Warren Thomson, Senior EVP and Chief Investment Officer, Manulife Financial, parent company to John Hancock. "Insurers are playing an important role in financing the transition to a lower-carbon economy.”
Case in point: Last month, top-scorer AEGON joined two more of the world’s largest insurers – Aviva and Amlin – in calling on G20 leaders to expedite the timeframe for the end of fossil fuel subsidies. The G20 has already committed to phase out “inefficient fossil fuel subsidies that encourage wasteful consumption” over the “medium term” - in May, the G7 nations pledged to achieve this by 2025 – but the three insurance giants, who together manage $1.2 trillion in assets, contend that they must go further, and commit to an end to assistance for fossil fuel companies within four years.