AIG adopts climate change policy

AIG recently unveiled a new policy that will manage the risks and capture the business opportunities posed by climate change, making it the first U.S.-based insurance company to adopt such a product.
The national coalition of investors and environmental groups Ceres says AIG’s new policy is in line its goal to incite improvement in insurance industry practices on climate change. Ceres runs its initiatives through the Investor Network on Climate Risk, a group of 50 institutional investors that manage nearly US$3 trillion in assets.
“I commend AIG for being the first U.S. insurance company to address climate risk,” Ceres president Mindy Lubber says. “This is an important step that signals to the market and policy makers that climate change is a critical insurance issue.”
AIG’s new policy states that the company is “actively seeking to incorporate environmental and climate change considerations across its businesses, focusing on the development of products and services to help AIG and its clients respond to the worldwide drive to cut greenhouse gas emissions.” The new initiative, “AIG’s Policy and Programs on Environment and Climate Change” can be found on AIG’s website at http://ir.aigcorporate.com/phoenix.zhtml?c=76115&p=irol-govresponsenviron.
AIG’s new policy comes at a time when U.S. insurers are seeing record increases in insured losses from extreme weather events. A 2005 Ceres study “Availability and Affordability of Insurance Under Climate Change: A Growing Challenge for the U.S.” found a 15-fold increase in insured losses from catastrophic weather events in the past three decades.
Investors have also been asking for insurance companies to improve their corporate governance and disclosure on climate risk. In December 2005, 20 leading U.S. investors, with combined assets of more than US$800 billion, sent a letter to 30 of the largest, publicly-held, insurance companies in North America urging them to disclose their financial exposure from climate change and steps they are taking to reduce those financial impacts.
Regulators and brokers are also increasingly concerned about climate risk. This year the National Association of Insurance Commissioners announced a new task force designed to examine the impacts of climate change and possible measures that insurers and regulators can take to reduce risk. Marsh released a risk alert in April 2006, “Climate Change: Business Risks and Solutions,” examining the complex global issue from a risk management perspective.
“Insurance as we know it is threatened by a perfect storm of increasing losses, rising temperatures and more Americans than ever living in harm’s way. In light of the regulatory and physical risks posed by climate change, AIG’s new policy is a major step forward for the insurance industry,” Lubber concludes.