US insurers are lagging behind their peers in Europe when it comes to addressing climate risks
Insurers don't have all of the answers to climate change, but they have many of the tools to help assess the risks, Maurice Tulloch, CEO of international insurance at Aviva, told the Insurance and Climate Risk Americas conference in New York.
He repeated warnings from other insurers that a 4°C increase in global temperatures on pre-industrial levels, would be uninsurable. "We would bow out of property and casualty insurance – our current model would be defunct," he said.
While accepting that the insurance sector has a key role to play in addressing the problem, Tulloch called for more action from regulators and policymakers.
"No insurer and can solve this problem on their own – we are calling on governments and regulators to act," he said. "They must do everything within their power to spur the energy transition away from fossil fuels."
He said this includes clarifying that investors' duties include assessing environmental issues, and rebalancing subsidies away from fossil fuels.
Aviva's policy is to engage with the fossil fuel companies it invests in, but Tulloch said the company has already divested from 17 when engagement was not working.
"Where we can't use language and debate and influence, we will continue to divest from companies not making sufficient progress," he added.
Regulators, for their part, told the conference that they are increasingly focusing on climate risks.
Mike Kreidler, Washington State's Insurance Commissioner, warned that politicians "will eat insurers' lunch" if they try to walk away from insuring areas that suffer the adverse impacts of climate change.
The concept that insurers could refuse to write contracts in areas or sectors that suffer climate-related impacts such as flooding or wildfires is "phoney", he said.
"The idea is that you could write insurance today and if bad stuff happened you can leave the market, it's a false assumption," he said. "Take a look at Florida in the late 1990s. They had a requirement that you have to market in those coastal counties or you won't market anything – any type of product – in the state."
Kreidler said insurance companies in the US are lagging behind insurers in Europe when it comes to integrating climate change into their modelling and strategies.
Yet he believes climate change offers opportunities for insurers to write cover for the increased risks it poses. And insurers can involve themselves more in the policy arena, such as helping to influence building codes and the planning of where homes are built.
"The opportunities are really rampant out there for what we can accomplish with building codes and land-use practices. I see that as the most fertile ground. Quite frankly, it should be led by insurance companies."
His sentiments were echoed by California Insurance Commissioner Dave Jones, who is "deeply concerned" about the sector's response to climate change. US insurers are not paying enough attention to climate-related transition risks to their investments, in particular, he added.
"Thermal coal is not a good investment for the companies that I regulate," he argued.
Meanwhile, Lindene Patton, a lawyer at Earth & Water Law Group in Washington, DC, claimed "a witches' brew of litigation" is being brought in Texas in the wake of the hurricanes Harvey, Irma and Maria, highlighting the growing liability risks that climate change and extreme weather events pose to businesses and insurers.
The growing number and intensity of extreme weather events and the growing certainty that they are linked to man-made climate change is increasing the risk that companies or other bodies are sued for not adequately acting to protect property or people from risks such as flooding, she said.
And insurers – whose liabilities may include underwriting properties or providing directors' and officers' cover – "will come along for the ride", she added.
The Insurance and Climate Risk conference was hosted by Environmental Finance and its sister titles Insurance ERM and Insurance Asset Risk.