Staying (insurance) cool in rising heat: Risk Management for Businesses and Cities in the face of Climate Change Sustainable Silicon Valley Annual Meeting Santa Clara, CA. December 8, 2008 - PowerPoint PPT Presentation

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Staying (insurance) cool in rising heat: Risk Management for Businesses and Cities in the face of Climate Change Sustainable Silicon Valley Annual Meeting Santa Clara, CA. December 8, 2008

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Staying (insurance) cool in rising heat: Risk Management for Businesses and Cities in the face of Climate Change Sustainable Silicon Valley Annual Meeting – PowerPoint PPT presentation

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Title: Staying (insurance) cool in rising heat: Risk Management for Businesses and Cities in the face of Climate Change Sustainable Silicon Valley Annual Meeting Santa Clara, CA. December 8, 2008


1
Staying (insurance) cool in rising heat Risk
Management for Businesses and Cities in the face
of Climate ChangeSustainable Silicon Valley
Annual Meeting Santa Clara, CA. December 8, 2008
  • Amy Bach, Executive Director

2
About UP
  • United Policyholders is a not-for-profit founded
    in 1991 that advocates for fairness in insurance
    transactions and is a help resource for
    commercial and individual policyholders
  • Loss recovery and legal support for individuals
    and businesses
  • Insurance Assurance preparedness education
    workshops
  • Interfacing with elected officials and regulators
  • UP advances the interests of individual and
    business policyholders
  • In regions that have been hit by natural
    disasters
  • By filing Friend of the Court briefs
  • By publishing materials in print and on line at
    www.uphelp.org
  • At the NAIC and in legislative proceedings
  • The organizations work is funded by donations
    and grants.
  • UP has a large national network of volunteers and
    limited paid staff.

3
Challenges and opportunities
  • The insurance industry has a uniquely high stake
    in the effects of climate change
  • Higher incidences of weather-related property
    damage claims will reduce the insurance sectors
    (formerly) extraordinary profitability
  • New risks that have limited data history will
    present pricing challenges
  • If the industry cant adapt to pricing these new
    risks, its role and influence will diminish
  • The insurance sector has the potential to make
    very substantial positive contributions to
    solving climate change related problems

4
Insurers reactions to data and their perceptions
re increasing risks are in play and will have a
substantial impact on all of us
  • Risks relating to new energy technologies that
    have no history present a challenge and an
    opportunity for insurers
  • If insurers cant adapt, fewer risks may be
    insured through the traditional carriers
  • More Captives, Risk Retention Groups and
    government involvement will continue to grow
    (e.g. TRIA, Flood, EQ)

5
Insurers have clearly noticed
  • Increasing hurricane activity and weather related
    property damage claims
  • 1,000 wildfires in California in 2008
  • The State of Florida is now in the reinsurance
    and risk-modeling business

6
Insurance executives are essentially gamblers.
Underwriters like predictable risks.
  • The predictive tools the industry uses have
    become more sophisticated over the years with
    computerized modeling, but climate change
    presents a level of unpredictability that has
    been described as ominous. Models and loss
    data that are based on historic events have
    limited relevance to the future.

7
Insurers reactions thus far
  • Increasing rates and deductibles
  • Adding exclusions
  • Strategic market share reduction in regions that
    have been hit repeatedly by catastrophic losses
  • Non-renewals
  • Rejected apps
  • Increased reliance on short term modeling firm
    data

8
A sampling of insurer positions in GHG
litigation coverage disputes
  • No covered occurrence because emissions have
    long been considered a byproduct of electricity
  • No coverage because damages complained of were
    in progress prior to the effective date of the
    applicable policy and are thus excluded from
    coverage
  • Carbon dioxide and GHGs should qualify as
    pollutants and thus be subject to a so-called
    total pollution exclusion in the policy.

9
Policyholder counsel disagree
  • Covered occurrence because emissions part of
    normal business operations
  • Carbon Dioxide was not classified as a pollutant
    at the time policies were issued,
  • The release of GHGs were not regulated emissions
    when policies were issued and therefore cannot be
    subject to the so-called total pollution
    exclusion.

10
Forming a captive insurance company
  • Somewhat analogous to medical savings accounts
    but much more complex
  • Substantial tax advantages
  • 40-50 million in annual sales
  • Strong risk management program in place
  • Relatively favorable loss history
  • Trade assoc. or group with similar entities
  • VT, NY, DEL, SC, DC
  • Vermont Captive Insurance Association

11
The dynamic
  • We want insurers not to stick their heads in the
    sand, but we dont want them to over-react
  • NAIC Climate Change Risk Disclosure Model

12
The insurance industry has the power to influence
societal behavior favorably by
  • Providing mitigation incentives
  • Managing and pricing property risks related to
    extreme weather events
  • Continuing to create and implement new products
    offering solutions for climate change-related
    risks
  • Refusing to insure development in ecologically
    sensitive areas
  • Focusing on underwriting third party liability
    claims against heavy greenhouse gas emitting
    industries for the climate change-related
    exposures they create

13
Green initiatives by insurers
  • Pay as you drive
  • Coverage for green building materials
  • Heightened attention to mitigation and
    preparedness
  • Renewable energy related insurance products

14
To do
  • Shop for policies that do not contain broad
    exclusions for events that could be associated
    with climate-change.
  • Be prepared to retain specialized policyholder
    counsel to challenge claim denials that are based
    on an insurers overly broad reading of a policy
    exclusion.
  • Investigate options
  • Self-insuring for lower risk levels and
    purchasing high layers of coverage/gap policies
    where necessary and appropriate.
  • Risk Retention Groups
  • Captive insurance companies
  • Aggressive mitigation/risk management.
  • Educate and help employees be prepared to recover
    from increased weather related property damage by
    buying enough and the right kind of insurance on
    their homes. See http//www.unitedpolicyholders.o
    rg/prepare_protect.html

15
Resources
  • Coverage for Climate Change Footing the Bill for
    Carbon Footprints by Michael Conley, Esq. and
    Meghan Finnerty, Esq. Anderson, Kill Olick, PC
    Environmental Claims Journal, 20(4)17, 2008
  • Captive Insurance Companies  A Growing
    Alternative Method of Risk Financing Journal of
    Payment Systems Law (June 2007) (with Isaac E.
    Druker and R. Mark Keenan) idruker_at_andersonkill.c
    om
  • Amicus briefs, articles etc. at United
    Policyholders website http//www.unitedpolicyhol
    ders.org/amicus.html

16
United Policyholders
  • Amy Bach
  • Executive Director
  • info_at_unitedpolicyholders.org
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