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Insurers urged to assess climate change risks

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  • Mike Neuman
    Insurers urged to assess climate change risks By JOHN CHRISTOFFERSEN AP Business Writer December 1, 2005, 8:36 PM EST STAMFORD, Conn. -- State treasurers and
    Message 1 of 1 , Dec 5, 2005
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      Insurers urged to assess climate change risks

      AP Business Writer

      December 1, 2005, 8:36 PM EST

      STAMFORD, Conn. -- State treasurers and controllers from around the
      country urged major insurance companies Thursday to analyze and
      disclose their financial risk from climate change, warning that
      higher rates and loss of coverage are inevitable.

      The officials, who oversee more than $800 billion in investments in
      the companies, said they are worried about escalating losses from
      hurricanes and other extreme weather. They say few insurers have
      examined the risks they face from climate change.

      "U.S. insurers are facing a perfect storm of rising weather losses,
      rising global temperatures and more Americans than ever living in
      harm's way," said Mindy S. Lubber, president of Ceres, a coalition of
      institutional investors and environmentalists. "Insurers and
      regulators have failed to adequately plan for these escalating
      weather events that will have major long-term ramifications on
      insurance companies and their shareholders."

      But Robert Hartwig, chief economist of the Insurance Information
      Institute, said such an analysis is not necessary. He said any change
      in climate is gradual and insurers already take into account such
      changes when they analyze risks.

      "Insurers are probably more experienced than almost any industry at
      adjusting to local changes in climate, whether they occur gradually
      or quickly," Hartwig said. "No insurance regulator in the United
      States is going to allow an insurance company to increase its rates
      based on a so-called global climate change factor."

      The request comes after devastating back-to-back hurricane seasons
      that caused $30 billion in insured losses last year and as much as
      $60 billion in losses from Hurricane Katrina this year, officials

      The officials, who are part of the investor coalition, warn that the
      losses will worsen if climate change trends continue and no action is
      taken to face the challenge.

      They want insurers to complete climate risk reports by August 2006
      that address the types of risks they face as well as opportunities
      for new markets and products related to climate change.

      "While no individual weather event can ever be attributed to global
      warming, scientific data indicate that rising global temperatures
      will likely increase the frequency and intensity of hurricanes,
      floods, drought, wildfires and other extreme weather events and
      indeed may already be doing so," the officials wrote in a letter to
      30 publicly held insurance companies.

      The group also released a report warning that climate change will
      result in more insurance claims, higher premiums and broader coverage

      Thomas J. Wilson, president and chief operating officer of The
      Allstate Corp., said in an interview Thursday that Americans face
      a "protection gap" as the risk of catastrophic disasters increases
      and the availability of affordable insurance decreases.

      Allstate, the nation's second-largest auto and homeowner insurance
      company behind State Farm, has cut back sharply on the number of
      homes it insures in Florida and has said it likely will take similar
      steps in Louisiana and other Gulf Coast states that were battered by
      hurricanes Katrina and Rita.

      He said "the increasing frequency and severity" of storms is exposing
      the insurance industry to the possibility of unacceptably large
      catastrophic losses. Some companies may stop writing policies
      altogether, he said. Others may increase deductibles and raise
      premiums to levels consumers would consider unfair.

      "What we need is a government-sponsored, privately funded catastrophe
      pool" to deal with severe hurricanes and earthquakes, Wilson said.

      Wilson said such a system could be funded from higher premiums
      charged to homeowners and businesses in high-risk areas.

      The letter to the insurers was sent by state treasurers and
      controllers from California, Connecticut, New York, Illinois,
      Kentucky, Maryland, North Carolina, Oregon and Vermont. The
      investors, who also include labor pension funds and a foundation, are
      part of the Investor Network on Climate Risk.

      The National Association of Insurance Commissioners is holding a
      panel discussion on climate change on Saturday in Chicago.


      AP Business Writer Eileen Alt Powell contributed to this story.
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