Canadian Underwriter

Changing Climate

July 31, 2011   by Mike Wallace

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Over the past several years there has been a growing number of natural disasters around the world, with both economies and communities suffering as a result. After a record-setting year of natural catastrophes in 2010, climate change has become an increasingly hot topic for the insurance industry. The trend for more frequent and severe weather events has meant insurers have had to find new ways to manage exposure and risk, and to acknowledge the role of climate change as well as our collective responsibility to tackle this rising issue.

With 950 natural catastrophes recorded worldwide, 2010 was one of the worst years in history; earthquakes, tsunamis, hurricanes and tornadoes caused unprecedented damage. And 2011 is continuing in the same vein. These chaotic and costly experiences have provided significant opportunities for learning, evolution and self-awareness for the insurance industry as we face the need to adapt to the impact of climate change.

Lessons learned

The insurance industry learned a lot from last year’s Chilean earthquake, a natural disaster affecting millions of people and at great cost. This catastrophe jump-started many internal discussions over the changing environment. In Canada, we used this as an opportunity to implement education and develop expertise that would help prepare our brokers and clients for future large, catastrophic events. We acknowledged there were a number of things we already do well – such as the use of commercial earthquake models – and identified areas where we could do better.

The Chilean earthquake proved there are greater risks when dealing with larger companies, such as clients who have multiple premises on the coast. This type of accumulation, in addition to atypical exposures, provided the industry with another layer of knowledge that we need to apply when making our analysis. It’s also important to look at wordings and models to reassess if it meets current needs. For example, in the case of Chile the wording included the terms “tidal wave” and “surges” but excluded “tsunami.” With this experience, we saw how necessary it is to adapt terminology for practical purposes.

Learnings from the Chilean earthquake have increased our knowledge and expertise, enabling us to better understand risks and reinsurance needs for catastrophes, and to predict the effects of climate change as much as possible.

As an industry so heavily impacted by extreme weather events, we have an important role to play not only in managing risk and providing support to our clients, but also in doing something about the underlying issue. We come into our clients’ lives at their most vulnerable and trying times, and it’s our job to get them back on their feet as quickly as possible. Therefore it’s also our job to look at the bigger picture.

This means taking meaningful steps to address climate change.

Internal changes

At our company, we’ve entered into a global partnership with global conservation charity World Wildlife Fund (WWF), which has been an engaging and incredibly enlightening experience for us as an organization. As a marine insurer in Canada, we have been particularly focused on marine conservation. Our goal is to secure the long-term protection of our oceans and the fishing industry, which is under a range of pressures including climate change.

Internally, we work hard to bring our commitment to climate change and WWF partnership to life. Last year three RSA Canada employees had the opportunity to visit Churchill, Man. to see first-hand the impact of human activity on polar bear habitats in the Arctic. It was such an eye-opening experience that this year our global organization RSA Group has launched a worldwide internal initiative, The Arctic Challenge. The challenge encourages all RSA employees globally to get into teams of five and compete for one of 15 places on a trip to Churchill to meet WWF scientists, see the polar bears and the difficulties they are facing from a changing climate. More than 10,000 employees are competing across the group for the opportunity to demonstrate their environmentally-inspired actions through volunteering and fundraising, ‘green’ idea generation, or physical activity to lower their own carbon footprints, in order to contend for the coveted grand prize.

Creative solutions

Insurers have a significant opportunity to use risk management expertise and product innovation to come up with creative solutions for energy savings. According to WWF-Canada, insurers, and other industries, can make a positive impact on climate change by producing more energy from renewable sources and using energy more efficiently and wisely. The renewable energy sector has grown significantly in Canada over the past couple of years, particularly in Ontario, due in large part to the provincial government’s Feed-in-Tariff (FIT) and microFIT programs.

Insurers heavily invested in providing sustainable solutions are always looking at ways to use expertise to support initiatives that help tackle climate change, especially in the claims handling process. In claims and other areas, there are more products on the market that allow customers to upgrade to more sustainable appliances and building materials in the event of a claim on their home or business. These green upgrades not only help make homes and buildings more energy efficient but can sometimes even help provide additional protection against extreme weather.

As insurers we have an immense opportunity to be agents of change, and should be encouraged by the signs that our willingness to adapt and find solutions means that a better future for our planet is actually within reach.

Climate change is a daunting reality of the 21st century and whether we like it or not, the insurance industry has been a barometer for the impact of this growing phenomenon. However, this presents a significant opportunity to take the lead and embrace the responsibility this gives us as an industry. From my perspective, facing the issue of climate change has not only challenged us to become more competitive by consistently enhancing our risk assessment and propositions, it has also opened up a world of possibilities to make a positive and meaningful impact for our clients, our people and the planet.

Mike Wallace is senior vice president of personal specialty insurance and reinsurance at RSA. 

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