1 Elayne Grace Sustainability Research Manager Insurance Australia Group Climate Change and the role of insurance.

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Presentation transcript:

1 Elayne Grace Sustainability Research Manager Insurance 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 average 1990’s the warmest Decade Warmest years 1998 and

Rainfall in most populated areas decreased

Heating up... Estimates range between 1- 6 degree global temperature increases by 2080

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 50% of events are hailstorms All weather related except Newcastle earthquake

18/3/ /4/ /1/1991 3/10/ /10/1995 Understand hail risk Sydney, Australia

Source: Swiss Re Top 10 Insured losses worldwide (In US$ m at 2001 prices)

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?

Why act now ?

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 Cyclone wind speeds 2.2  C mean temperature increase 17-28% increase bushfires 1  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 minute precipitation Floods 2.2  C mean temperature increase Cyclone Change in climateHazard Resulting change in hazard Source: Mills et al(2001)

Small changes in hazard intensity can lead to multiple increases in damages NSW, NRMA Building Insurance only Source: Sydney Morning Herald 25 th August 2003

Australia: Highest emissions per capita & 3% of industrialised countries Peaks at 6098 Mt Total GHG Emission comparison (MT CO 2 –e ) Per capita emissions comparison ( T CO 2 per person) 3% of Annex 1 emissions. Higher than France & Italy (1/3rd population) Highest per capita emissions Source: Australia Institute

IAG’s approach 2Supply chain Helping to make our suppliers/ supply chains cleaner and safer – over 11,000 suppliers (smash repair, building, white good procurement) 1Internal Researching climate change, reducing IAG’s environmental footprint, driving cultural change 3Customers & community Sharing knowledge with our customers & working with our community – over 4 million customers

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 industry Encouraging 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 Coast Flood regions Two 100 year events in 2 yrs Claims cost: NZ flood Flood research 2004NZ$ 112m 2002NZ$ 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 $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

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