You would think that out of all the industries in the world, the one that would be most concerned with climate change would be the insurance industry. Take a look at the costs for Superstorm Sandy alone. The extreme hurricane caused damage estimated at nearly $75 billion. According to a press release last month by the Property Casualty Insurers Association of America, 2012 cost insurers $35 billion in privately insured property losses, which is $11 billion more than the average over the last decade.
Insurers, and the reinsurance companies that shoulder much of the ultimate risk in the industry, heavily rely on scientific thought and not which way the political wind is blowing on climate change. They are comfortable with the scientific consensus that the rampant burning of fossil fuels is the main cause of climate change. Despite their confidence, the question remains, what is the insurance industry doing about climate change considering the problem directly impacts their own interests?
Surprisingly, the answer is not much. Insurers mainly focus on zoning regulations and disaster alleviation since the industry is disinclined to enter energy policy’s controversial fray. Furthermore, insurers are more insulated from climate change’s devastation than at first meets the eye. The federal government covers flood insurance, which is an enormous risk during extreme weather. Additionally, insurers adjust to higher risks by raising premiums or dropping coverage. So successfully that despite Superstorm Sandy and the protracted drought that ravaged the Midwest Corn Belt, property and casualty insurance in the United States was more profitable in 2012 than in 2011.
However, there are signs that the insurance industry is looking increasingly favorably on a carbon tax. The true costs are placed on the polluters with a carbon tax rather than being passed on to the rest of us. Also, they’re encouraged to pollute less. Most insurers would prefer a carbon tax over a host of additional regulations from the Environmental Protection Agency (EPA).
Although the industry is warming to the idea of a carbon tax, they’re still hesitant to throw all of their weight behind it. Again, money talks; insurers haven’t yet experienced heavy losses from climate change. The exception is 2004 and 2005 when a series of hurricanes including Katrina, the costliest natural disaster in the history of the United States, caused damage worth more than $200 billion.
So the bottom line is that if these storms continue to hit people and businesses in the wallet, then eventually even the staunchest climate change disbelievers will admit the obvious. However, we need to do what we can in the meantime to avert global disaster. We don’t want to pass the point of no return.