Lloyd’s Warns Insurers Could be ‘Swept Away’ by Climate Change

Lloyd’s has joined the growing list of those in the insurance industry who recognize the threats posed by climate change. Although its bulletin avoids using the more inflammable label – “Global Warming”-, Lloyd’s has just published a new report, “Climate Change, Adapt or Bust,” that tells insurers they must “must face up to the growing threat of climate change or risk being swept away.”

The Report urges insurers to “act now to understand and actively manage risks from emerging threats such as greenhouse gases and rising sea levels. With recent scientific evidence suggesting that climate change is happening faster than previously thought, investment in research and a change in industry behavior are long overdue.”

Lloyd’s cites the following “Key Findings” included in its report:
— recent natural disasters have revealed the inadequacy of capital and pricing models, so catastrophe models must be updated regularly to keep pace with the latest scientific evidence;
— the industry must take a new approach to underwriting, looking ahead and factoring in climate change scenarios, rather than simply basing decisions on historical records – especially with extreme windstorm seasons set to continue;
— insurers must prepare for the impact of climate change on asset values. Underwriting for profit will be crucial;
— insurers must regularly review and communicate conditions of coverage in light of the impact of climate change; and
— effective partnership with business and government will be key to mitigating risk.

Rolf Tolle, Lloyd’s Director, Franchise Performance commented:
“Although it’s almost two decades since the UN recognized that climate change was a catastrophic threat to earth, it’s clear that the insurance industry has not taken catastrophe trends seriously enough. As an industry we must work together to understand and manage these new risks, and to change our behavior.

“Today’s risk environment is changing and evolving – more rapidly than ever before. So at Lloyd’s, understanding and anticipating major risk trends is at the heart of all we do.

“Climate change is today’s problem, not tomorrow’s. If we don’t take action now to understand the changing nature of our planet and its impact, we will face extinction.”

The report is the first in a series – Lloyd’s 360 Risk Project – designed to “generate debate about today’s key risk issues and how best to manage them.”

The issues raised in the report will be debated at a session on July 5 at Lloyd’s. “The panel session, chaired by Sir Trevor McDonald will explore the key issues surrounding climate change and its impact on the insurance industry and the wider business world,” said the bulletin. “Joining him will be business leaders and risk experts, including Thierry Desmarest, CEO of Total, Bob Hartwig, Chief Economist of the Insurance Information Institute, Wyn Jones OBE, Managing Director, Alcan UK; John Eliasch, Chairman, Head; and Lord Levene, Chairman of Lloyd’s.”

The new project has been assigned its own Website at: www.lloyds.com/360. A full copy of the Report is available on the site.