Sea Change

Churchill, perched on the shore of Hudson Bay in Northern Manitoba, seems like an awfully long way to go to see firsthand the effects of climate change. I travelled to Churchill with the insurer RSA in November as part of its ‘Seeing is Believing Tour.’

Hosted by World Wildlife Fund (WWF), the tour was a chance to see firsthand the polar bears that occupy the area and the impact climate change is having on the survival of this species. When I told people about the trip, I was always met with confusion. ‘What does an insurance company have to do with climate change, polar bears and WWF?’

Last month, in Part 1 of this series, I traced links between climate change and the extended period of time that polar bears are being stranded on shore, near — and sometimes in —  Churchill, a result of bears not being able to find sea ice on which to hunt. Over the course of the week, it was made clear to me what the connection is between the survival of these bears, and the insurance industry.

Tundra Buggy Cruising

On Day One of the trip I had the rare opportunity of going on a bear drop (see ‘Sea Change,’ Canadian Underwriter, December 2011). On Day 2,  we pile onto a bus at 8 a.m. and make our way to the Frontiers North tundra buggy launch site. We will spend the next two days on the tundra, watching the bears in their natural habitat.  The sun hides behind a cloud cover. The -14 C temperature plummets to -28 C with 70 km-h wind gusts. It hurts to breathe. My eyelashes freeze with each blink.

As the bus crawls along the highway, we pass by Hudson Bay. One of our guides is Geoff York, senior program officer for polar bear conservation for the WWF’s Arctic Program. He points out that because of the temperature drop over the past 24 hours, the amount of ice on the bay, which should be frozen over by now, is approximately four times what it was the day before. Everyone on the bus cheers. It feels like our team has scored a touchdown in a crucial football game. We haven’t won yet, and our stats show us lagging far behind, but at least we’re on the board.

Why are we cheering? The development of sea ice is a good sign for polar bears, because it means they can move out to their hunting grounds where seals are plentiful and begin to rebuild the crucial fat stores that sustain them over the summer months. It’s also good for insurance companies because it suggests some delay in the onset of climate change. Insurers will tell you climate change is the chief culprit in a number of particularly vicious weather storms that have caused the Canadian property and casualty insurance industry to pay out more than $1 billion in insured losses in each of the past three years.  

‘Tundra buggies’ are airport fire engines retrofitted with school bus seats and windows, a propane stove, an observation deck off the back and the coldest washroom facilities known to humankind (I’m convinced). We lumber along abandoned military roads that weave through the tundra. When we spot bears, Arctic foxes or hares, we are told, we will lower the windows and observe in silence. We’re told it could take hours before we encounter anything, so be patient. If we’re quiet and still enough, the bears will likely wander up to our buggies.

Within 10 minutes of setting out, we spy a polar bear sow sitting on a sheet of ice with her two cubs nestled against her body. Mom and babies get up to saunter away, and one of the cubs does a Bambi-like skid across the ice. A chorus of ‘awwwws’ fills the buggy.

Further down the road, a sow is hunkered down in a patch of brush. One cub is tucked into her. The other lays a few feet away. Pete Ewins, WWF-Canada’s senior species officer and one of our guides, says this is the third day or so they have been there, suggesting the sow is potentially suffering and desperately in need of getting out onto the ice to hunt.

Climate Change Tutorial

As we roll through the tundra, the first four hours spent watching the bears on this science fiction-like landscape feel like 20 minutes. After lunch, Geoff and Pete hold a tutorial. They’ve created a mock classroom at the front of the buggy, filled with props and charts and maps.

The Arctic is like the earth’s thermostat, the snow and ice reflect the sun’s rays and help to keep the planet cool, Pete explains. Multi-year sea ice — ice in the far North that lasts year-round — is declining in range on average 11% per decade, Pete says. “So in absolute numbers, in September 2007, that coverage of multi-year sea ice was 4.1-million square kilometres,” he says. “And it’s projected, somewhat conservatively, to be 400,000 square kilometres by 2050. That’s a massive reduction.”

The annual ice on Hudson Bay would cease to exist by then. The multi-year ice would be the last frontier for the survival of the polar bear. But as Geoff hastens to point out: “This isn’t just an Arctic or a polar bear story,” he says. “Changes happening here are affecting or will affect all of you where you live. The Arctic controls global climate. As the Arctic is changing, the whole world will be affected.”

A link between warm Arctic temperatures and cooler continental weather is well documented in scientific literature, Pete adds. The exaltation (or elevation) of heat in the Arctic leads to adjustments in high and low pressure systems over the Atlantic. For example, if the sea ice melts, a jet stream that keeps the United Kingdom and Western Europe mild in the winter is cut off. The result would be much harsher winters and the freezing up of ports in areas like France, Germany and the United Kingdom. The potential icing over and/or seasonal shutdown of ports that typically flow year-round might wreak potential havoc on supply chains. This in turn would affect commercial insurers that offer coverage in the event that a client company’s supply chain is interrupted.

Furthermore, without ice blocking access, sea passages in the North could conceivably be open for longer, resulting in an increase in traffic through the area, Geoff says. The problem is, these areas haven’t been properly charted. And so an increase in traffic could potentially lead to an increased risk of ships running aground, resulting in spills.

“Polar bears are the canary in the coal mine,” says Pete. “We have to decide as a society if we’re going to greet these signals and respond. If we don’t, then our grandchildren will have to. And [by then] it’s going to be thousands of times worse and more expensive [to fix].”

Some current research shows that if societies initiate large enough actions on a broad enough scale, the arctic ice melt can be halted, Geoff says. “The sea ice will respond in our lifetimes, and definitely within our children’s lifetimes, and will start to come back.”

As the afternoon rolls along, I find myself sitting down with Pete. He asks if I’m finding enough information for the story I need to write. That leads us into a discussion about whether more bridges need to be built between the science community and financial services community, including the P&C insurance industry.

Underwriting Climate Change

In insurance, for example, fire posed the biggest risk to the property and casualty industry for most of the past 300 years. The industry worked long and hard to mitigate that risk, aiding in the development of appropriate building codes and warning systems. But, over the past decade insurers have started to be hit hard by a deluge of claims arising from severe wet weather. Insurers are convinced the severe weather events are connected to climate change, although science is not yet at the point where it can confirm the links at a sp
ecific regional or granular level. The point here is that insurers have had to shift gears quickly over the past few decades: insurance underwriting for climate change and factoring climate change into premium pricing models remains a major challenge.

During our conversation, Pete references The Stern Review: The Economics of Climate Change. In the 2010 report, Lord Nicholas Stern warns that ignoring climate change will eventually damage economic growth. “Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century,” Stern wrote. “And it will be difficult or impossible to reverse these changes. Tackling climate change is the pro-growth strategy for the longer term … The earlier effective action is taken, the less costly it will be.”

That evening, at the Traders’ Table in Churchill, I have the opportunity to sit and chat with Shawn DeSantis, executive vice president of RSA Insurance in Canada. He tells me weather-related losses have been a concern in the Canadian marketplace for quite some time. But certainly over the past five years, the frequency of events and the geographic pockets in which they’re occurring has been a cause for concern. The rule of thumb in property and casualty insurance is that you have to be able to accurately predict the claims losses in order to predict the correct premium to charge policyholders. But if losses due to climate change are unpredictable, that makes underwriting the product and the development of mitigation strategies that much more difficult.

“As underwriters, we’re spending a lot more time trying to understand how it is that we deal with this,” he says. “In the last couple of years, I would suggest that we’ve been reacting as an industry. We have always been trying to chase the appropriate premium or the appropriate risk mitigation for weather. I think the whole industry is on a strong learning curve for what this means on a go-forward basis.”

The next day I speak with David Weymouth, risk director for RSA’s group operations, who agrees with DeSantis. “Are we beginning to see enough evidence for actuaries to understand that climate change ought to cause us to revise our view on pricing catastrophe events and the impact of weather?” he says. “I would say at the moment there is increasing evidence that you may have to look at some different models. We had an unprecedented 2011 in terms of catastrophe [losses]. No one saw it coming. Lots of reinsurers would agree that the weather patterns and the patterns of catastrophes over the past 10 years are much, much harder to predict. So you are seeing some changes. Turning that into [accurately predicting premium] pricing is probably a way away though. But we are working toward it.”

DeSantis said it’s not a case of inventing a new model or tool, but rather constantly increasing the sophistication of existing models. “We need to ensure that we’re keeping up with the challenges and we’re ahead of it, versus
reacting to it.”

Through a Different Lens

We were meant to spend the last day of our trip in the Nunavut community of Arviat. We were going to meet with community members to discuss the challenges climate change pose to their traditional way of life. But a blizzard has grounded us in Churchill. Across the street from our hotel is Mike Macri’s studio. Mike is a local photographer who has lived in Churchill for 40 years. With a bit of time to spare, Sarah Kennedy, communications officer with RSA, Juan Montalvo, a freelance photographer hired by RSA, and I pop over to look at his prints. Mike has been observing Churchill’s wildlife and environment through his lens for longer than most of the scientists in town. His images include northern lights blazing across the sky, igloos lighting up a dark tundra and polar bears lumbering across the terrain. In a soft-spoken voice he shows us his prints and explains when and how each shot was taken. We ask if he’s noticed a difference in the decades since he’s been keeping watch. “Absolutely,” he says. “I’m seeing birds that I would never see this far north, jungle-like growth where it used to be just tundra with some wildflowers, and bears that are getting smaller and smaller. A change is definitely occurring.”