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					                                                                                                                                Position paper




                            CEA Position on the Green Paper on
                     Adapting to climate change – Options for EU actions




   CEA reference:                   AB7040                                                  Date:             09 January 2008

                                    Green Paper on adapting to Climate
   Referring to:                                                                                             COM(2007) 354
                                    Change – Options for EU actions

   Related CEA documents:           CEA Report on Climate change, July 2007


   Contact person:                  Sandrine Noël, Head of Non-life                         E-mail:          noel@cea.assur.org


   Pages:                           13




 | Content


   1.       Introduction .............................................................................................................................. 2
   2.       Impacts ..................................................................................................................................... 4
   3.       Europe must adapt – Challenges for European Society and European public policy ................... 5
   4.       Focusing EU action – priority options for a flexible four-pronged approach ............................. 7
   5.       The second pillar: Integrating adaptation into EU external actions ......................................... 11
   6.       The third pillar: Reducing uncertainty by expanding the knowledge base through integrated
   climate research ................................................................................................................................ 12
   7.       The fourth pillar: Involving European society, business and public sector in the preparation of
   coordinated and comprehensive adaptation strategies ..................................................................... 12




                                                                           *




CEA a.i.s.b.l.                                                                                                                                           1
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                                                                                                        Position paper


    1. Introduction

    CEA is the European insurance and reinsurance federation. Through its 33 member bodies comprising of national
    insurance associations, CEA represents all types of insurance and reinsurance undertakings, e.g. pan-European
    companies, monoliners, mutuals or SMEs. CEA represents undertakings which account for approximately 94% of
    total European premium income. Insurance makes a major contribution to Europe’s economic growth and
    development. European insurers generate premium income of €1065bn, employ over one million people and invest
    more than €6,900bn in the economy.

    During the summer 2007, CEA issued a report1 which described the impact of Climate change on the insurance
    industry and the existing framework across the Europe for the coverage of Natural catastrophes. In this report, CEA
    already urged for:

    A constructive dialogue between all relevant stakeholders

    A public-private cooperation in risk and loss reduction to enhance the insurability of the risks

    A sound and coherent legal framework to guide private action

    CEA thanks the European Commission for the opportunity to comment on the Commission Green Paper on
    Adapting to climate change, published on 29 June 2007 from the perspective of the European insurance and
    reinsurance industry which it represents.



The (re)insurance industry has invaluable expertise...

    The (re)insurance industry has been accumulating and sharing expertise on climate risks for some time now;
    assessing and managing these risks is part of our core business. Indeed:

     The (re)insurance industry has been compensating an increasing part of the economic losses resulting from weather
    related disasters (such a €12 bn on average per year in total), from 17 % in 1980 to 28 % in 2006 in Europe2.

     In some Member States, the (re)insurance industry has already developed flood risk mapping and zoning tools,
    sometimes together with the public authorities3, which contribute to an appropriate risk assessment and
    management. CEA has also been cooperating to similar initiatives under the aegis of the European Water Directors,
    referred to as the Exchange Circles on Flood Forecasting and on Flood Mapping and on Land Use Planning (resp.
    EXCIMAP, EXCIFF and EXCILUP).

     The (re)insurance industry also has an extensive experience in the ways of raising risk awareness and incentivizing
    adequate behaviour and/or measure, through adequate pricing policy (premium and/or excess) and underwriting
    policy (terms and conditions requiring action).



... and is keen to contribute actively to the further required research.

    However, as described in the green paper, the events consecutive to climate change are expected to increase hugely
    in frequency, intensity and extension. As a consequence, the insurability of these risks is threatened. Adapting to a

1
  CEA - « Reducing the Social and Economic Impacts of Climate Change and natural Catastrophes »; July 2007.
2
  NatCatSERVICE, Geo Risks Research, Munich Re (December 2006)
3
  CEA - « Reducing the Social and Economic Impacts of Climate Change and natural Catastrophes »; July 2007 - Annex
CEA a.i.s.b.l.                                                                                                         2
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    changing climate will require more than ever the involvement of all private and public stakeholders in research,
    prevention, risk management and loss compensation at the local, national and European level.

    We welcome the priority given to research in the third pillar of the green paper and were happy that it got
    confirmed by all stakeholders in the workshops organized by the European Commission. The (re)insurance industry is
    willing to keep sharing its expertise. To that respect, a stable environment providing stakeholders with sufficient
    legal certainty is needed. More specifically, we would encourage the Commission to renew the Block Exemption
    Regulation (BER) for the insurance sector (Commission Regulation (EC) No 358/2003) beyond its 2010 validity
    deadline. Indeed, not renewing the BER might for instance discourage (re)insurers from carrying out the joint
    studies that might be helpful and relevant in the context of the abovementioned research.



Holistic approach and shared responsibilities are key success factors

    As stated in the green paper the expected consequences of climate change greatly differ from one Member State to
    another. So do the current compensation schemes for natural events, with different roles allocated to the public and
    private sectors4. There is indeed no single European solution.

    Local and market-driven solutions must be favoured. We would encourage the European Commission to require all
    countries to publish their adaptation strategies, which would also outline the legal framework and the specific
    compensation schemes adopted, in order to help sharing best practices and to monitor the adaptation process.

    The European insurance industry intends to keep its central role in the tackling of climate change’s effects,
    incentivising prevention and risk management and developing appropriate insurance solutions. Therefore, the
    general principles pertinent to the insurance business need to be safeguarded on the European level to enable the
    insurance industry to adapt to climate change. One of these principles is the right to underwrite according to the
    level of risk. Preventing the insurance industry from pricing risks accurately through differentiated pricing and/or
    from defining adequate terms and conditions, would result in high prices and/or lack of coverage. Thanks to these
    practices, insurance schemes increase awareness and incentivize adequate adaptation behaviours, in opposition to
    compensation funds (such as the EU Solidarity Fund).

    Nevertheless, insurers alone will not able to cope with challenge of climate change. A sustainable insurance market
    can only function if the necessary steps are taken to reduce the risks and their impacts over the coming decades
    while at the same time preventing further extreme climatic changes in the second half of the century via a strong
    mitigation policy. Due to the scale of this challenge, public-private partnerships will be required from the risk
    management (see e.g. the Land Use Planning project) up to the risk transfer with public authorities eventually acting
    as reinsurer of last resort. To that respect, we advise a clarification of the terminology related to insurance schemes
    in future publications in order to avoid any misunderstanding.




4
  See p.25, table 4 of the CEA report « Reducing the Social and Economic Impacts of Climate Change and natural Catastrophes »;
July 2007
CEA a.i.s.b.l.                                                                                                                   3
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    2. Impacts


       (1) What will be the most severe impacts on Europe’s natural environment, economy and Society?

       The most severe impacts of climate change, including extreme weather events (such as flood and drought), crop failure and
       disease will fall most harshly on those regions and people least able to adapt to the impacts of climate change, most often the
       poorest. The threats posed by continuing warming will affect and possibly disrupt the operation of markets, societies,
       ecosystems and cultures and will compound with other effects like poverty, insecurity, congestion, forced migration and
       pollution.

       The Green paper identifies the most sensitive economic sectors (coastal cities, water management, agriculture, tourism and
       energy supply) but fails to recognize the higher vulnerability of Small and Medium Enterprises: the experience shows that 60
       to 80 % among them, when not properly insured against business interruption, go bankrupt after having been hit by an
       extreme event.



       (2) Which of the adverse effects on climate change identified in the Green Paper and its annex concern you most?

       Over the past fifty years there has been a worldwide increase in the incidence of natural catastrophes such as flooding,
       leading to greater economic and insured losses. This has been due to a combination of factors including changes in land use
       as more properties are built in flood risk areas, and greater affluence leading to higher losses once an event occurs, as well as
       more frequent events.

       The Green Paper correctly states that adaptation will bring new business opportunities to the insurance industry. However,
       more than any other industry, the insurance product innovation is submitted to profitability requirements (by the shareholders
       but also by regulation) and market demand. These two underlying conditions are currently not met for all the green insurance
       policies the one might think of and incentives will probably be required to activate the process.

       Moreover we feel concerned by the lack of attention paid to other impacts, less positive, of Climate change on the insurance
       industry.

       The most obvious one is the expected increase in claims costs, regarding its pivotal role in the compensation of the financial
       loss incurred by the insured individuals, farmers, energy providers, etc. As stated in CEA report5, Climate change will affect all
       lines of business (property, crop, livestock, business interruption, motor, health,....). The insurance industry is already incurring
       additional costs from adverse climatic conditions and has developed and refined techniques to cope with these burdens.
       However the sector is restricted by market considerations from applying those measures more widely.

       But Climate change will also require the insurance industry to invest in the change of its financial processes (funding, risk
       mitigation techniques, provisioning,...), its business processes (underwriting, claims,...) and its organization in order to cope
       with challenges inducted by regulatory and market evolutions.



       (3) Should further important impacts be added?

       Besides the direct impact of climate change on claim losses across all its lines of business, the insurance industry also faces
       other indirect effects which could also lead to an overall financial instability.

       When the insured events are highly uncertain and of expected high amplitude, like natural events are, the usual insurance
       techniques of provisioning and diversification might reveal insufficient to guarantee the insurability of catastrophic events at
       an affordable price. This is even worsened in case of highly correlated events (combination of storm & flood e.g.) and not-well
       diversified portfolios.

       To compensate for the difficulty in smoothing catastrophe losses over time and to reduce the additional required capital and
       its related cost, some insurers hedge their risk in the capital market directly, using CAT-bond and weather derivatives.


5
    CEA: « Reducing the Social and Economic Impacts of Climate Change and natural Catastrophes »; July 2007.
CEA a.i.s.b.l.                                                                                                                            4
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     However the use of “new” financial techniques by the insurance industry to transfer part of the risks will most probably not
     be sufficient to cope with the overall expected consequences of Climate change.



 3. Europe must adapt – Challenges for European Society and European public policy


     (4) Does the Green Paper place the right urgency and emphasis on the matter of adaptation in Europe?

     We welcome the EC initiative to consider adaptation as a priority after much needed attention having been paid to mitigation.

     It is urgent to start now with taking effective adaptation actions, certainly with regards to risk assessment, risk management
     and planning policies. Adaptation to climate change is also vital in order to sustain Europe’s economic strength in the decades
     to come.

     However adaptation and mitigation need to go hand in hand. We cannot ignore indeed that climate changes are already
     occurring and are unavoidable for the some decades, requiring immediate adaptation measures. Nevertheless, if we do not
     mitigate as from now, it will be almost impossible and at least hugely expensive to adapt to climate change in the future.

     (5) What should be the different roles of EU, national, regional, local authorities and the private sector?

     The role distribution between the different public authorities and private sectors is a very complex issue that cannot be
     answered in a generic way, regarding the different empowerment typologies existing across sectors and Member States. This
     question requests a case-by-case analysis, involving all the stakeholders among which the insurance sector.

     Nevertheless, we believe that it should be built on the core principles described below.

     From the (re)insurance industry perspective, it should be outlined that weather and climate change impacts as well as
     exposure of assets and infrastructure and compensation schemes are highly variable in Europe. As a consequence there is no
     one single solution to reduce the impacts of climate change on weather related losses. An EU-wide uniform, “one-size-fits-
     all” approach is not appropriate, risk transfer solutions need to be developed at a Member State level. The main challenge lies
     on increasing capacities for coverage i.e. effective market-oriented solutions (including pooling of market players) and
     development of public-private partnerships. The development of market-based instruments does indeed not preclude the
     governments to take greater and more concerted actions.

     The private sector, the insurance industry included, has a role to play in the adaptation process. Being in a pivotal intersection,
     the Insurance industry can help significantly all interests at stake to manage the economic losses but also to
     facilitate/incentivize the adaptation to climate change. Several initiatives have already been taken by the industry to that
     respect, such as the launch of products that encourage a « green behaviour » (pay-as-you drive motor insurance, discount of
     the motor insurance premium for hybrid car, new liability products for energy management businesses exploring alternative
     energy sources,...) even though the market (demand side) is not always mature for this kind of products. Everyone, not only
     the business, has to take its responsibility.

     Since adaptation actions will have effects on welfare that are local and private, the responsibility of action should be at the
     lowest empowered level. In order to assess where the competence lies for adaptation measures, it is helpful to disaggregate.
     On the one hand, the insurance industry sits, as previously mentioned, at a pivotal intersection at the EU level with the
     Financial Services Action plan and the Solvency II directive. On the other hand, strategies for reducing flood risks and tackling
     floods when they do happen, though necessarily different in approach, are both essentially matters for local actions.

     Besides the streamlining of the reflexions about the roles distribution between the different stakeholders, together with them,
     we believe that the EU also has a crucial role to play in the sharing of best practices, between Member States and sectors. The
     insurance industry can feed the debate with its expertise in each of the process steps (risk assessment, prevention, mitigation
     techniques, claims assessment, etc).




CEA a.i.s.b.l.                                                                                                                        5
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     (6) Which economic, social and environmental impacts of climate change should be addressed at EU level as a matter of
     priority?

     From a (re)insurance perspective, an emphasis is placed on mitigation of the economic impacts of weather-related events and
     the development of sustainable insurance solutions6 covering these new risks with public sector commitments where
     appropriate. In that respect any EU intervention should primarily focus on:

          •   Improving the information about climate risks assessment and making it available for all stakeholders.

          •   Facilitating the exchange of information and best practices.

          •   Providing stakeholders with sufficient legal certainty with regards to their contribution to research. More specifically,
              we would encourage the Commission to renew the Block Exemption Regulation (BER) for the insurance sector
              (Commission Regulation (EC) No 358/2003) beyond its 2010 validity deadline. Indeed, not renewing the BER might
              for instance discourage (re)insurers from carrying out the joint studies that might be helpful and relevant in this
              context7.

          •   Supporting the sharing of responsibilities between the stakeholders by limiting the intervention of compensation
              funds (e.g. EUSF) in order to incentivize the public and private stakeholders to take appropriate adaptation measures,
              by keeping the possibility for the insurance industry to underwrite according to the risk (differentiated pricing and/or
              terms and conditions) and by encouraging appropriate public sector commitment in prevention and, where
              appropriate, as reinsurer of last resort, keeping in mind that, as previously mentioned, a “one-size-fit-all” approach
              would not be appropriate.

          •   Encouraging the development of new financial markets for ecological services and examining whether the
              monetisation of ecological goods and services that are vulnerable to climate change could help preserve them, and
              where appropriate facilitating the development of new financial markets for them.



     (7) Apart from the main priority areas identified in the four-action approach, are there other areas that have missed out? If
     yes, which?

     As already mentioned, a one-size-fits-all solution is not recommended. Nevertheless, the European Commission should keep
     monitoring the process by requiring from all Member States to report on their adaptation strategies, with a special focus on
     the prevention policy and the adopted compensation schemes (insurance, compensation funds, etc).




6
 Insurers making their business viable in the international, social and financial dimensions over the long term, known as the “Triple
Bottom Line” aiming to contribute positively for People, Planet and Profit

7
 See the “CEA response to the European Commission inquiry into the European business insurance sector pursuant to Article 17 of
Regulation 1/2003” (http://www.cea.assur.org/cea/v1.1/posi/pdf/uk/position325.pdf) and the “CEA Position on the Green Paper on
Retail Financial Services” (http://www.cea.assur.org/cea/v1.1/posi/pdf/uk/position329.pdf)




CEA a.i.s.b.l.                                                                                                                       6
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                                                                                                                  Position paper

 4. Focusing EU action – priority options for a flexible four-pronged approach


     (8) Does section 5.1 correctly and comprehensively identify the needs and policy priorities for early adaptation actions that
     should either be taken or coordinated at the EU level?

    The Green Paper outlines the right aspects, but there are several additional issues that need to be incorporated:

          •   It is essential not just to understand the potential direct impact that extreme weather events could have on a specific
              business sector, but also to look at the indirect impacts for other connected sectors (see supply chains). This is
              certainly true for the insurance sector (as mentioned in questions 2 and 3) but not exclusively.

          •   Vulnerability of critical infrastructure (e.g. energy) is a key threat. Therefore adaptation policies need to take this into
              account and focus on resilience.

          •   EU should require all Member States to develop a comprehensive adaptation strategy with targets and timetable to
              measure the progress made.

          •   The climate change impacts on health will have several consequences, i.e. also on social security schemes and public
              health policies. Private insurers are ready to assist in raising awareness, understanding the potential health
              implications and preventing them. To meet such a role, private insurers need to be guaranteed with adaptive
              capacity stemming from the general principles pertinent to the insurance businesses. See also our answer to
              Question 13.

     We would like to comment on the statement in the green paper according to which “new financial products, such as weather
     derivatives and CAT-bonds”, are “ways to respond efficiently to increasing exposure to climate-related risks”. Whilst these
     financial instruments are indeed ways of increasing the insurers’ capacity, the financial markets will not have the required
     capacity to absorb the effects of expected extreme events.

     Furthermore, the need for immediate action should not prevent the EU to develop a methodology for cost/benefit analysis
     allowing an effective monitoring of taken actions in order to continuously adapt the action plan and optimize the resources
     allocation.

     Last but not least, we believe that one of the first measures for the EU would be the development of an education plan
     raising public awareness, not only on the urgency of taking action but also on concrete adaptation measures the one might
     take in his/her daily life. The EU could support the process by communicating on the EU initiatives with regards to its own
     adaptation measures (leading by example).



     (9) How do policy priorities need to change for different sectors? Which policy approaches should be taken at national,
     regional or local level? Where is European actions needed?

    As previously mentioned, we believe in local market-driven solutions with support and guidance from upper authority levels or
    Public-Private Partnership solutions.

     Actions at EU level would be required in the following areas:

          •   Reporting and monitoring of national adaptation strategies, including prevention and compensation schemes of
              losses, as well as their effectiveness to help identifying best practices in that area and monitoring the adaptation
              process.

          •   An overview of “good practices” in Europe of risk sharing arrangements for weather related risks between
              government and private sector.

          •   Pooling of information and knowledge in basic climate data, indirect effects from natural disasters, disaster
              prevention, more widespread use of Geographic Information Systems (GIS).

          •   Implementation of early warning systems.


CEA a.i.s.b.l.                                                                                                                          7
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          •   Proactive risk management instead of traditional post-disaster assistance.

     As far as the regulatory framework for financial services is concerned, initiatives at EU level should also include:

          •   The limitation of the EU Solidarity Fund support to the sole extreme events, in order to make the public and private
              stakeholders aware of their responsibilities, keeping in mind that prevention is better than cure and that the public-
              private mechanisms in place should primarily focus on promotion techniques of prevention, adaptation and
              mitigation.

          •   A clarification of the application modalities of article 100 of the Treaty which enables the Council, acting by a
              qualified majority on a proposal of the Commission, to decide on Community financial assistance to be granted to a
              Member State victim of a Natural disaster. In its current state, this article might indeed consist in a barrier to market-
              based (insurance) solution in the countries where there is none so far and limit the incentive to take prevention
              measures and to adapt.

          •   The renewal of the Block Exemption Regulation (BER) for the insurance sector (Commission Regulation (EC) No
              358/2003) beyond its 2010 validity deadline. Indeed, not renewing the BER might for instance discourage
              (re)insurers from carrying out the joint studies that might be helpful and relevant in the context of the research on
              Climate change.

          •   A friendly regulatory environment for alternative risk transfer mechanisms and freedom for risk adequate pricing
              thanks to which insured individuals and businesses are motivated to take prevention measures.



     (10) How can agriculture and fisheries policy be adapted to help these sectors adjust to the impacts of climate change? What
     will be the likely consequences of climate change for trade in agriculture products?

     As mentioned in the green paper, these sectors are also amongst the most exposed to climate change’s harmful
     consequences. Even though we believe in the propensity of the sector to adapt autonomously to progressive climate change,
     support is required to ease the process and to limit the consequences of extreme weather events on the sustainability of this
     sector. To that respect, existing agricultural European policies should take following specific points into account:

          •   Drought should be recognized as a natural catastrophe for the agricultural sector, on the same level as flood (see
              commission regulation (EC) No 1857/2006 of 15 December 2006)

          •   In case of financial participation in farmers’ insurance premium payments, multi-perils insurance policies should be
              promoted over the stand-alone coverage of natural disasters. Multi-perils policies, which cover risks that can be
              assimilated to natural disasters together with risks that cannot, have been developed by insurers to improve the
              insurability of natural disasters thanks to the technical compensation between the risks and their diversification. This
              would improve the sustainability of the system as well as the coverage of the farmers and livestock breeders.

              It would then be reasonable to fix the participation at an intermediate level between 50% and 80% (current
              intervention percentage of the stand-alone coverage of natural disasters), according to the respective weighting of
              the premium for natural disaster risks and the one for the other risks covered in the multi-perils insurance policy that
              can cause damages close to catastrophic.

          •   The funding allocation policy of the Common Agriculture Policies should incorporate criteria which would incentivize
              the adaptation to climate change (e.g. preventing farms from remaining in flooding area).

     Having stressed these specificities, our opinion regarding the approach for these sectors does not differ that much from the
     general one, namely:

          •   Considering the local differences (existing local structure of crops and livestock sectors, expected impacts of climate
              change,...), there is no “one-size-fits-all” solution

          •   Public-Private Partnership should be part of the solution, with the insurance sector contributing to risk assessment
              and management, incentive to adaptation, etc. There is a clearly identified need for sharing responsibilities and costs
              between farmers and livestock breeders, insurers and public authorities which could have a role to play as reinsurer


CEA a.i.s.b.l.                                                                                                                        8
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Tel: +32 2 547 5811 • Fax: +32 2 547 5819
www.cea.assur.org
                                                                                                                 Position paper

              of last resort (in order to enable the insurers to cope with a certain level of excess of loss related to catastrophic
              damages) and/or as premiums aid-granter (to enable the farmers to buy the appropriate coverage).

          •   The European Commission has a role to play in facilitating the research, the exchange of best practices, the
              information/education, etc.



     (11) How should the EU express its solidarity with regions suffering most heavily from the consequences of climate change?

     Policies related to the financial support to these regions have to be reviewed in order to guarantee that they are coherent and
     consequent with the need to mitigate and adapt (e.g. rebuild in safer ways and areas). More specifically, as previously
     mentioned (see question 9), we advocate for a clarification of the article 100 of the Treaty.

     With regards to non financial support, CEA believes in a two-way exchange with and amongst these countries (sharing
     information about how to cope with changing weather conditions and learning from others) and in the role of the EU in
     facilitating this exchange.


     (12) How could a collective European response help coastal Europe to tackle the effects of rising sea level?

     -

     (13) How should EU policy on public health take the impact of climate change into account?

     Sustainability of Europe’s social security systems and public health policies are under significant pressure. Without taking into
     account impacts of climate change, Commission Services estimate increases in overall EU spending on healthcare in EU(25) to
     reach roughly 140% of their 2000 figures. Whilst increases in health expenditure in past decades have been mainly influenced
     by policy decisions to enlarge the access to healthcare, by the demand for better quality healthcare linked to growing income
     levels and by technology8, future levels of health related expenditure will be likely effectuated by other factors such as
     demographic and climate changes. Moreover, should the Member States not reform their current pension systems, the public
     debt of EU(27) would reach some 200% of the EU-wide GDP in 2050.9 Therefore, products offered by insurers will play even
     more important role should the public health and welfare of Europeans remain affordable, accessible and of adequate quality
     also in future.

     Climate change, intense heat waves and frost heaves, weather extreme events such as flash-floods and droughts, changes in
     atmospheric chemistry, ocean warming, forest fires and ozone layer depletion (in combination with pollution, international
     transport and mobility) are likely to play expanding roles in the pandemics incidence. This is not only a case of contracting the
     skin cancer or a spread of allergies and respiratory diseases such as asthma whose very strong genetic component is very likely
     catalysed by air pollution and allergen exposures but also a case of displacement of tropical maladies vectors (both
     anthroponoses and zoonoses) such as malaria, West Nile virus, Lyme disease (and influenza). These are then likely
     complemented by diseases and extreme weather events related illnesses and infections such as anemia, hypoglycemia, low
     birth weight, fatal unintentional injuries, water and food borne-infections and diseases, psychological disorders etc. And,
     finally, natural disasters can also result in a destruction of health infrastructure with short and medium-run consequences.

     Climate change is one of several concurrent global environmental changes that simultaneously affect human health. A
     transmission of vector-borne infectious diseases, for example, is jointly affected by climatic conditions, population movement,
     extensive deforestation and land-use patterns, biodiversity losses (e.g. natural predators), freshwater surface configurations,
     human population density, air pollution (increased carbon dioxide, photochemical smog, dust and hazes, but also fungal and
     plant spores and pollens and toxic molds) and ways of living. Evidently, climate instability is altering the patterns, distribution
     and factors supporting transmission of diseases. Quality of land and marine ecosystems, air, freshwater and food is also
     impacted. These and their combinations could appreciably influence and lead into sudden morbidity and mortality shocks and
     their unpredictable local, regional or global outbreaks.

8
  European Commission, DG Economic and Financial Affairs: The impact of ageing on public expenditure: projections for the EU-25
Member States on pensions, healthcare, long-term care, education and unemployment transfers (2004–50), Special Report No.
1/2006, European Economy, 2006.
9
  Communication from the Commission to the Council and the European Parliament: The long-term sustainability of public finances
in the EU {SEC (2006) 1247}, p.5.
CEA a.i.s.b.l.                                                                                                                9
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     Under such circumstances, private insurers need to be guaranteed with adaptive capacity stemming from the general
     principles pertinent to the insurance businesses. These have to be safeguarded on the Community level should the European
     insurance industry be able to, actually and potentially, adjust to climate change, to moderate likely damages, to take
     advantage of opportunities, and stay an existing and competitive partner in the health related areas.

     One of these principles is the right to assess and quantify the risk and the right to use risk calculation, i.e. the right to
     underwrite according to the risk presented. Based on global experience, insurers may also need to adjust parameters and re-
     price risks. If insurers were unable to price accurately for risk, policyholders would ultimately bear the costs in higher prices.
     Risk-pricing also means that greater sub-sectors of the population are insurable. Prohibitions to use risk factors inhibit the
     industry’s ability to price products fairly and to provide wide insurance coverage. Insurers need to understand the risks they
     cover profile and be able to differentiate the exposures and vulnerabilities of the various subgroups. This will entail
     differentiated premiums and coverage.

     Another principle is the right of access to relevant data. This allows the implementation of preventive programs and follow-
     ups, monitoring, pursuing proper planning of covered services and ensuring their quality and safety, analysing the
     appropriateness and cost effectiveness, discarding fraud etc.

     Community may also wish to guarantee a level playing field between social security providers and private insurers. Fair
     competition between private and public market participants necessarily presumes the application of effective competition
     rules - this set-up increases efficiency and quality of services provided, develops new potential for innovations and is
     favourable to consumers.

     Last but not least, EU should assure further monitoring of significant public health burdens, i.e. monitoring towards significant
     threats to public health (via the epidemic intelligence of European Centre for Disease Prevention and Control). These may be
     diseases with a high current prevalence and/or severity, or considered likely to become prevalent under conditions of climate
     change.

     In summary, it seems as indispensable that the European Union and its Member States will step up their efforts to cope with
     challenges relating to sustainability of public finances induced by the ageing of the European society. There are, nevertheless,
     other essential challenges caused and relating to the climate change. If public healthcare and welfare are to remain accessible,
     affordable and of adequate quality for the future generations, European private insurers’ expertise and innovative approaches
     may contribute significantly.


     (14) What will be the consequences of climate change for Member States’ potential energy mix and for European energy
     policy?

     The expected climatic changes will have an impact on energy needs. For example hotter summers may lead to increased
     energy consumption due to the need for cooling. This needs to be taken into account when assessing the future demand
     structure. The way energy is produced is of key importance in the mitigation to climate change. Therefore this is one of the
     key areas where policies on mitigation and adaptation need to be complementary. Contradicting measures need to be
     avoided. The change in energy mix will accelerate in the coming years, with new technologies emerging and developing.

     The insurance market has already been developing products which help this evolution and will pursue this innovation process
     for the coverage of production, R&D (see Munich Re pilot of exploration-risk insurance for geothermal energy) and risk
     transfer.



     (15) Please rank the listed options under each of the areas of the four-action approach for EU adaptation into the following
     three categories:

     a) Most urgent and to be implemented by the Commission as a matter of priority

     b) Low priority for Commission implementation

     c) Irrelevant for Commission implementation

     /


CEA a.i.s.b.l.                                                                                                                      10
Square de Meeûs, 29, B-1000 BRUSSELS, Belgium
Tel: +32 2 547 5811 • Fax: +32 2 547 5819
www.cea.assur.org
                                                                                                                     Position paper


        (16) What are the possible synergies between adaptation and mitigation measures? How can these synergies be
        strengthened?

       As correctly stated in the green paper, adaptation and mitigation must go hand in hand. Otherwise we will be exposed to
       irreversible effects or, in the best case, to higher required adaptation efforts and related higher costs.
       As a consequence, adaptation measures which are counterproductive with mitigation should be avoided and the ones which
       efficiently tackle with both adaptation and mitigation, a priori favoured.
       Below some examples of insurance solutions combining adaptation and mitigation10:
               •       Accidental damage, breakdown and extended warranted cover for climate-friendly technologies
               •       Discount on the home insurance premium in case of climate-friendly house equipment
               •       Motor insurance premium depending on the actual use of the vehicle (“pay-as-you-drive”) or reduced for hybrid
                       vehicles
               •       Adapted insurance solution for renewable energy schemes
               •       Insurance for carbon credit-based projects


        (17) In the context of EU policy, how can companies and citizens be encouraged to participate in adaptation actions?

        Most people are reluctant to change their behaviour, certainly if they are not aware of any personal advantage to do. Besides
        regulatory measures in critical fields, companies and citizens could be encouraged to participate in adaptation actions by:
                   •    An easy access to ad-hoc information on advised actions and their expected outcomes (return on investment)
                   •    A friendly regulatory environment favouring the demand for Climate friendly products and services (among which
                        insurance policies favouring adaptation and mitigation measures) such as tax incentives, freedom for the insurer to
                        fix a premium in accordance with the level of risk, etc.


     5. The second pillar: Integrating adaptation into EU external actions

        (18) How will climate change affect the policy priorities of the EU’s external policies?

       /
        (19) Which priorities should the EU set for its co-operation programmes in the different parts of the World with respect to
        adaptation to climate change?

        The EU should focus on the co-operation programmes which
           •   tackle with events abroad that might have the most harmful impacts on the European socio-economical situation;
           •   will accelerate EU learning process through an exchange of information on risk assessment and best practices in those
               countries that have been experiencing similar situations as the one European Member States can expect;
           •   provide international leadership and facilitate knowledge exchange around the issue of adaptation;
           •   integrate adaptation in discussions around trade and competitiveness, as adaptation will have an effect on global markets
                and international supply chains.


        (20) Which are the main opportunities and obstacles for adaptation in different parts of the World?

       /

        (21) What are the best options to make the EU’s external action more resilient to climate?

       /

        (22) What could be the value added for EU action compared to other international initiatives including, for instance, the
        UNFCCC and multi-lateral funding instruments?


10
     Association of British Insurers – “Insuring our future climate: thinking for tomorrow, today” –September 2007
CEA a.i.s.b.l.                                                                                                                          11
Square de Meeûs, 29, B-1000 BRUSSELS, Belgium
Tel: +32 2 547 5811 • Fax: +32 2 547 5819
www.cea.assur.org
                                                                                                                Position paper

    /


 6. The third pillar: Reducing uncertainty by expanding the knowledge base through
    integrated climate research

     (23) Do the listed research areas address the most important knowledge gaps? If not, please add?

     Most of the important knowledge gaps have indeed been correctly identified in the green paper even though following areas
     might be added:
        •   Since adaptation measures need to be implemented at regional or local level, decision-makers should be provided with
             models which are scaled down to these levels.
        •   Decision-makers, companies and citizens should be properly informed on the measures that are the most effective for
            them to be adapted to climate change


     (24) Which are the five most important research areas that need to be addressed as a matter of priority?

     One of the most important research areas relates to local/regional modelling and comprehensive impact assessments
     (integrating socio-economic and environmental aspects, considering adaptation and mitigation measures together), attaching
     costs to the different scenarios.


     (25) How should research results be communicated and made available to decision makers and a broader public at local,
     national, EU-level and internationally?

     The research results should be made easily accessible and understandable to the broad public, through the web, education
     programmes and conferences but also through potential intermediaries in the purchase process (architects, selling agents,
     legal advisors, etc) and labelling of the products and services.
     The extensive results of the studies should also be available through the internet and working groups for more specialized
     stakeholders, such as the insurers, which could use these in order to contribute to the research and thereby to the search of
     appropriate measures and solutions.


 7. The fourth pillar: Involving European society, business and public sector in the
    preparation of coordinated and comprehensive adaptation strategies

     (26) Does the Green paper foresee sufficient participation of the different stakeholders in identifying and implementing EU
     adaptation actions?

     As already mentioned, the insurance sector has accumulated huge experience in modelling, prevention, mitigation, claims
     settlement and management of natural disasters and other events that would be particularly useful for the preparation and
     implementation of the European strategy towards climate change. Adaptation is in fact risk management, and the insurance
     industry has invaluable expertise, which it is already sharing with the public sector.
     The insurance industry has indeed already been collaborating with the Commission on these issues (see EXCIMAP, EXCILUP,
     workshops, conferences,...) but would welcome an enhancement of its involvement in the future consultation process.


     (27) Should stakeholders from the EU’s neighbours and other regions be involved?

     Non-EU countries should definitely be involved. Climate change does indeed not know any political barrier and events abroad
     can also affect the EU society. As a consequence, coordinated action might be required for adaptation, mitigation and disaster
     recovery.
     Moreover EU’s neighbours experience would most probably be useful for the set up of the EU strategy towards climate
     change.


CEA a.i.s.b.l.                                                                                                                  12
Square de Meeûs, 29, B-1000 BRUSSELS, Belgium
Tel: +32 2 547 5811 • Fax: +32 2 547 5819
www.cea.assur.org
                                                                                                            Position paper

     (28) Would the establishment of a European Advisory Group for Adaptation be helpful in the further exploring of the EU
     response to the effects of climate change? If yes, which areas should such an Advisory Group concentrate its work on?

    CEA welcomes the establishment of such an Advisory Group involving specialist from every stakeholders group, with a clearly
    defined remit. The set-up of multidisciplinary working groups, for each identified action area, might also be advised.
    The insurance industry believes that its involvement in such working groups is advised regarding its expertise, experience and
    pivotal role in all dimensions of this issue from risk assessment and prevention measures to claims assessment and financial
    solutions.




                                                               *



About CEA

    CEA is the European insurance and reinsurance federation. Through its 33 member bodies comprising of national insurance
    associations, CEA represents all types of insurance and reinsurance undertakings, e.g. pan-European companies, monoliners,
    mutuals or SMEs. CEA represents undertakings which account for approximately 94% of total European premium income.
    Insurance makes a major contribution to Europe’s economic growth and development. European insurers generate premium
    income of €1065bn, employ over one million people and invest more than €6,900bn in the economy..

www.cea.assur.org




CEA a.i.s.b.l.                                                                                                                 13
Square de Meeûs, 29, B-1000 BRUSSELS, Belgium
Tel: +32 2 547 5811 • Fax: +32 2 547 5819
www.cea.assur.org

				
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