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1
Elayne GraceSustainability Research ManagerInsurance Australia Group
Climate Change and
the role of insurance
1. Climate Change
2. Why climate change is important to insurers ?
3. IAG’s response
4. Creating change together
Global temperatures have increased
Global temperatures – difference from 1961-90 average
1990’s
the
warmest
Decade
Warmest
years
1998 and
2001 -
2003
• Warming trend in Australia cannot be explained by natural climate variability alone
• Science is well established and widely accepted
• Greenhouse gas increases are due mainly to burning of fossil fuels for electricity and transportation
Global warming caused by increased greenhouse gas emissions
How do we reduce the threat ?
Australian GHG emissions by sector
(2002)
We need to reduce carbon dioxide emissions by
encouraging a less carbon intensive economy
• GHG emissions are a
fundamental by-product of
economic activity
• How do we reduce GHG
emissions with the minimum
impact on economic
activity?
• Insurance spreads cost of risk across community
• If frequency or severity of claims increases insurers have
to increase premiums and/or mitigate risk to stay viable
Climate change is expected to increase claims
frequency and/or severity of extreme weather
events !
So why is an insurance company interested?
Weather and climate are core business
Top 20 Insurance Disasters at January 2004
'84 '92 '74 '74 '96 '03'67'76'73 '71'86
'03 '91'83'74 '85'90
'74
'98
'99
-
500
1,000
1,500
2,000
2,500
Insu
red
prop
erty
loss
in 2
004
equi
v $M
50% of events are
hailstorms
All weather related except
Newcastle earthquake
Why are Economic & Insured Losses still rising?(adjusted to present day $)
Climate change-
driven natural
disasters are
forecasted to cost
the world's financial
centers as much as
$150 billion per year
within the next 10
years, according the
UN Environment
Program's (UNEP)
finance initiative
report.
Source: Munich Re
“A survey of the years 1950/2003 reveals a massive increase in major
weather-related natural catastrophes during that time.
Between 1994 and 2003 there were almost 3 times as many
weather-related natural catastrophes as in the 1960s.
Economic losses increased by a factor of 5.3 in the same period,
insured losses by a factor of no less than 9.6.
The main causes in both cases were floods & windstorms.”
Munich Re.
“There is a danger that human intervention will accelerate and
intensify natural climate changes to such a point that it will become
impossible to adapt our socio-economic systems in time.”
Swiss Re.
What reinsurer’s are saying?
Small changes in mean climate can increase hazards dramatically
25% increase in evaporation leading to increased bushfire
risk
1.3 C maximum temperature increase
Drought
Increase of 5-10% in Cyclonewind speeds
2.2 C mean temperature increase
17-28% increase bushfires1 C mean summer temperature increase
Bushfire
25% increase in evaporation leading to increased bushfire
risk
1.3 C maximum temperature increase
Drought
1 in 100 yr Flood becomes 1 in 17 yr Flood
25% increase in 30 minuteprecipitation Floods
2.2 C mean temperature increase
Cyclone
Change in climateHazard Resultingchange in hazard
Source: Mills et al(2001)
Small changes in hazard intensity can lead to multiple increases in damages
0
100
200
300
400
500
600
700
Under 20 knots 20-40 knots 40-50 knots 50-60 knots
% I
ncr
ease
in
Dam
ages
25% increase in peak gust causes 650%
increase in building damages
NSW, NRMA Building Insurance only
Source: Sydney Morning Herald 25th August 2003
Australia: Highest emissions per capita &
3% of industrialised countries
0
200
400
600800
1000
1200
1400
Fran
ce Italy
Austr
alia UK
Cana
da
Germ
any
Japa
n
USA
Peaks at
6098 Mt
0
5
10
15
20
25
30
Franc
e Italy
Austr
alia
UK
Cana
da
Germ
any
Japa
n
USA
Total GHG Emission comparison (MT CO2 –e)
Per capita emissions comparison ( T CO2 per person)
3% of Annex 1 emissions.Higher than France & Italy
(1/3rd population)
Highest per capita emissions
Source: Australia Institute
IAG’s approach
2 Supply chain
Helping to make our suppliers/ supply chains cleaner and safer – over 11,000 suppliers (smash repair, building, white good procurement)
1 Internal
Researching climate change, reducing IAG’s environmental footprint, driving cultural change
3 Customers & community
Sharing knowledge with our customers & working with our community– over 4 million customers
Qld TCs: Extreme Events
840850860870880890900910920
2001
-20
10
2011
-20
20
2021
-20
30
2031
-20
40
2041
-20
50
Decade
Cen
tral
Pre
ssur
e hP
a
GHG Extreme
No GHG Extreme
TC “Dinah” Jan – Feb 1967
Intensity
increases
as
pressure
falls
Researching climate change
Cyclone Risk
Reducing IAG’s environmental footprint
Benefits
Reducing our footprint reduces operational costs
2005 target reductions:
• Electricity 10%
• Paper 15%
• Air Travel & Fuel 5%
Approaches include:
• Lighter weight paper in policy booklets
• Video conferencing, ‘think before you print’
• Purchase of Green energy ,”Hybrid” vehicles
IAG Sustainability
report 2004
Suppliers: smash repair industryEncouraging safer and cleaner production and waste management
• Recycling bumper bars
• Waste strategy for suppliers
• Insurance premium
discount for ‘Preferred
Smash Repairers’
Understanding building vulnerability
Are current building codes adequate now and in the future?
Storm Research
Susceptibility of
buildings/materials to
storm damage
Identify ways to
encourage more
sustainable material use
Hail Gun: Roof material breaking point
Roof material What size hailstone
caused roof to crack?
Corrugated steel sheets 10cm in diameter
Concrete tiles (new) 7cm in diameter
Terracotta tiles (new) 7cm in diameter
Old slate (100 years old) 5cm in diameter
Old terracotta (50 years old) 5cm in diameter
Working with communities on flood mitigation
Flood mitigation work
•Planning / building controls
•River and catchment management
•Engineering works
NZ Thames Coromandel
CoastFlood regions
Two 100 year events in 2
yrs
Claims cost: NZ flood
Flood research
2004 NZ$ 112m2002 NZ$ 22m
Sharing knowledge with our customers
Home help Greensafe car profiler• Rating cars by
environmental &
safety performance
• Designing & building tips
• Emergency disaster safety tips
• White good profiler
• Energy & water saving tips
In collaboration
with NSW EPA
1. Set a national target of 60% reduction in GHG emissions by 2050
• Long term vision to encourage energy conservation and cleaner technologies
2. Implement a national emissions trading scheme by 2007
• Trading schemes successful & encourages lowest cost responses
A way forward for Australia
3. Encourage all Australians to take responsibility for emissions
• Educate and inform the community about actions they can take
4. Adapt to a new climate now
• Increase water conservation and reuse, Improve building codes, More drought resilient farming practices
5. Develop and encourage unprecedented new business opportunities
• Energy efficient and less carbon intensive products & processes
6. Show international leadership – it can make a difference !
• Positioning for new markets, Provide example for others, export opportunities
A way forward for Australia
Climate Change - Solutions for Australia
The Australian Climate Group
• 1,300 experts in 95 countries looked at the state of the environment
and found 2/3rds of the ecosystems were being degraded or used
unsustainably – UN’s millennium ecological assessment
• We are currently treating the earth as a business in liquidation – it’s not
on anyone’s balance sheet
Business case
Financial improvement through reduced costs
Risk reduction
Attraction of best talent
Encourages creativity by rethinking the way things are done
Business case for dealing with climate change
Interesting business examples
• Carbon disclosure project, representing over $10 trillion asks the
Fortune 500 CEO’s what their carbon liability is?
• BP saved $650 million over 3 years from estimated outlay of $20
million. Absolute reductions in emissions of 18% between 1998 & 2001
• DuPont has had a 67% reduction in GHG emissions since 1990. $2
billion saved through energy efficiency
• Panama Canal – use financial markets to pay for reforestation
Conclusions
1. Climate change is here and now! Small changes in climate can increase damage dramatically
2. Greenhouse gas reductions needed urgently to mitigate
threat Long term reduction target & Carbon Emission Trading Scheme needed
3. Reducing GHG emissions can bring financial and economic
benefit
4. IAG playing active role in bringing others on the journey
but only on start of very long journey