The Case for Green Insurance by susianatjhai


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									The Case for Green Insurance

As the underwriters of the global economy, climate concerns and other
environmental challenges are a particularly poignant issue for the
insurance industry. This significance was demonstrated last year when
executives from insurers and reinsurers around the world traveled to
Cancun to participate in COP-16, which notably included a special side
session focused specifically on climate adaptation, risk management, and
product innovation for the insurance industry. This event reviewed how
climate change will affect everything from Caribbean catastrophe risk to
agricultural micro-insurance schemes.

The insurance industry has incredible potential to help society address
the challenges explored at COP-16. In the U.S., the National Association
of Insurance Commissioners acknowledges this special position in a
whitepaper entitled The Potential Impact of Climate Change on Insurance
Regulation, writing that "the insurance sector is uniquely positioned
between the two ends of the climate-change spectrum- the causes and
impacts...Insurers have the potential, in keeping with their historical
role, to be significant innovators in contributing to the solutions of
climate change by managing and mitigating both the causes and the impacts
of catastrophes brought on by such change." To help fulfill this
potential, NAIC maintains a Climate Change and Global Warming Task Force
to coordinate ongoing analysis of the impact of climate change on
insurance consumers, insurance providers, and insurance regulators.

Perhaps even more compelling, insurers around the world are already
developing products and policies to address new risks and capitalize on a
sustainability oriented business-scape. In a recent statement, Allianz
CEO Michael Diekmann noted that "Climate change has increased our
clients' insured losses by a factor of 15 over the past 30 years. We are
developing new solutions, including for future risks that could otherwise
not be adequately insured. At the same time, investments in renewable
energy sources and more efficient technologies will open up new
opportunities for our clients - and will help address climate change."
For Allianz, sustainability and environmental concerns are not simply
corporate citizenship issues; they are a new way of doing business.

International organizations, global industry leaders, and prominent
industry associations are all thinking about what climate change and
other environmental issues mean for the insurance industry and what new
opportunities these issues will create. So what does it mean for
individual insurance companies and the people who lead them? There are 4
primary reasons why insurers should integrate environmental thinking into

Save Money - Green Programs Save Money Beyond the attractive cost savings
which can be realized from implementing operational green programs,
insurers can reduce the cost of servicing claims by dictating better
environmental performance from their business partners. For instance,
Swedish insurer Folksam's campaign to raise the environmental performance
of its automotive repair-chain partners to high standards saved $40
million on car repairs over a five year period by encouraging the reuse
of original parts.
Make Money - Green Products have Better Margins Climate adaptation and
mitigation is positioned to completely redefine the insurance industry in
coming decades. For instance, changes in weather patterns will threaten
insurers who are not prepared, but will create new opportunities for
those capable of adequately underwriting new risk factors. Increasing
concerns about climate stability, energy security, and other
environmental issues are already inspiring new generations of products,
from Lloyd's of London offering Insurance for predicted energy savings or
renewable energy technology performance to Swiss Re offering insurance
for developers of carbon-reducing Clean Development Mechanism products
under the Kyoto Protocol. As a new area of insurance, competition in
climate-related policies is still modest relative to other insurance
products, and the pioneers will be able to enjoy better returns.
Additionally, as highlighted in the Folksam example above, applying next
generation environmental thinking to existing product lines can increase

Manage Risk - New Environmental Issues & Regulation are Risks which
Insurers Must Understand The UN Environmental Program projects that
losses from climate change related events could reach $1 trillion
annually within 30 years. To deal with this major risk, insurers must
recognize it at a strategic level and invest in partnerships and programs
to develop the right responses. For example, Allianz has formed a cross-
company climate change working group to develop and implement action
plans for each of the company's main branches. Additionally, as climate
laws such as California's AB 32, cut their regulatory teeth, it is of
vital importance that insurers monitor such policies and consider how
they will affect business. At this early stage in the game, companies
still have an opportunity to participate in shaping these policies; the
21 companies which participate in the UNEP's insurance work stream are
taking an active role in directing future regulation. Laggards, however,
risk being assessed by standards they had no part in shaping.

Build Brand Value - Insurers have a Public Mandate to Act as Responsible
Community Partners Customers, whether individual consumers or corporate
clients, are a key stakeholder for any business and increasingly they are
showing loyalty to brands that stand for responsible environmental
practices. Insurers, in particular, stand to benefit from being seen as
responsible stewards of the communities and industries in which they
operate. Product differentiation can be very difficult in the insurance
industry as illustrated by countless television ads instructing viewers
how 15 minutes can save you 15% or more on insurance. Establishing your
company as the insurer which protects our planet and communities can be
the additional element that makes a customer chose your product over the

The insurance industry is incredibly complex and incorporating
environmental thinking into strategy is a similarly knotty issue.
Addressing this challenge, however, presents an attractive opportunity to
the underwriters of a greener society.

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