Climate change isn’t just a concern for environmentalists anymore.
Increasingly the insurance industry is taking a leading role in weighing the risks of what many scientists agree is a changing global climate that is leading to more severe weather.
And harsher storms pose a major threat to insurers whose customers’ insured property often gets caught in the cross hairs of hurricanes and tornadoes.
Superstorm Sandy, for example, which swept across Connecticut’s shores last October, accounted for more than $25 billion in insurance claims on damaged homes, cars and businesses, according to Munich Reinsurance America Inc.
In response, Connecticut insurance regulators are taking a proactive approach to monitor insurers’ risks. Beginning Aug. 30, Connecticut insurance companies will be required to complete a climate change survey that will help regulators identify trends and assess weather-related risk factors that impact the availability and cost of coverage.
Connecticut is one of five states — California, Minnesota, New York and Washington — that now makes the Climate Risk Disclosure Survey mandatory for licensed companies that write annual premiums of more than $100 million.
Approximately 110 insurance companies in Connecticut meet that criteria and will have to complete the eight-question survey by the end of this month, officials said.
“As regulators, it is important that we identify those climate-related factors that can affect the marketplace and in particular, the availability and cost of insurance,” said Connecticut Insurance Commissioner Thomas Leonardi. “These surveys give us another window into the industry’s risk management practices as they relate to changing weather patterns.”
The Climate Risk Survey was actually adopted in 2009, but initially optional for insurers to fill out, said George Bradner, director of the insurance department’s life and health division.
The mandatory survey asks insurers questions related to investments, in-house environmental strategies, and whether insurers talk about risks related to climate change and severe weather, including hurricanes, tornadoes, hailstorms, thunderstorms, droughts and heat waves.
The new survey requirement doesn’t just apply to property and casualty insurers. Health and life insurance companies also have to fill out the questionnaire, Bradner said, adding that he hopes the new disclosures will spark dialogue among insurers, customers and stockholders about how the industry manages risk and customer outreach.
“The department is responsible for protecting consumers and ensuring companies are financially sound so they can pay claims at the end of the day,” Bradner said.
An increasing number of major weather-related storms have hit Connecticut in recent years, which have cost insurers billions of dollars in losses. That includes the occurrence of three once-in-a-generation storms during a 14-month period. Connecticut has felt the effects of hurricanes Irene and Sandy, a severe October 2011 snowstorm, and several tornadoes.
Last year, natural disasters cost insurance companies a staggering $58 billion, making it the second-most expensive year ever in the U.S. after 2005, when hurricanes Katrina and Rita struck the Gulf Coast.
Insurers, however, aren’t the only ones that bear the financial costs of climate change. Their customers feel the effects too, not just through damaged property, but in the form of higher premiums.
In fact, the recent wave of storm activity caused property insurance rates in Connecticut to increase 5 percent over the last year, Bradner said.
For their part, many insurance companies have already taken a proactive approach toward climate change.
Travelers Cos., for example, which has a major Hartford presence, established a climate change committee in 2005 to identify the emerging risks and opportunities that global warming presents.
In 2007, The Hartford launched a comprehensive environmental stewardship effort by creating an environment committee and issuing a climate change statement.
Insurers like The Hartford have also adopted green insurance products that compensate policy holders for the higher costs associated with rebuilding homes and businesses with sustainable materials such as recycled products.
Hartford spokesman Thomas Hambrick said the property and casualty insurer has completed the climate risk survey in past years and is supportive of the state’s move to make it mandatory.
“The Hartford has long recognized that climate change is a very real risk, not only to insurance companies, but to our policyholders, businesses and the overall economy,” Hambrick said.
