Climate Products Developing Insurance Products to Facilitate Adaptation and Mitigation to Climate Change Risks September 14, 2009 RIMS Canada The Importance of Risk Based Price Signals in Assuring Resilience and Adaptation

Climate Products © Zurich Financial Services 2 Underwriting for a Sustainable World:8/24/2009 Disclaimer The information in this publication was compiled from sources believed to be reliable for informational purposes only. All information herein should serve as a guideline which you can use to create your own policies and procedures. We trust that you will this information to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult with your own attorneys when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

Climate Products © Zurich Financial Services 3 Underwriting for a Sustainable World:8/24/2009 Climate Change Is Happening …. Potential increased frequency and severity of storms Rising sea levels Potential increased frequency and severity of drought Natural resources stresses

Climate Products © Zurich Financial Services 4 Underwriting for a Sustainable World:8/24/2009 In Canada, Climate Change has resulted in … Increased severe weather events – Flood – Hurricane winds – Ice Storms – Fires … Specific risks and effects of climate are regional in nature – Insects – Fish – Other species – Industry impacts Economic consequences are dramatic …

Climate Products © Zurich Financial Services 5 Underwriting for a Sustainable World:8/24/2009 Climate Change or Asset Value Increase – either way – insurance is at the “eye” of the storm … Source: Canadian Meteorological Service Other examples more recent … (1) 2006 Vancouver, BC – hurricane winds; Property damage – millions; Power interruption 200,000 affected (2) 2005 Floods So. Alberta $400 M CN (3) Wildfires: 2003 BC / Alberta $700 M CN losses; 45,000 evacuated

Climate Products © Zurich Financial Services 6 Underwriting for a Sustainable World:8/24/2009 What is the Role of Insurance in Adaptation to and Mitigation of Climate Change Risk ? History / Demonstrated Record of reducing risks – Exploration into emerging markets – Reduction of Fire Risk / Improvement of Existing Building Stock – Improvements to Worker Safety – Improvements to Vehicle / Driver Safety – Risk Mitigation in Deployment of New Technologies Policy makers should engage insurance industry expertise and capital to most efficiently and effectively adapt to and mitigate risks of climate change – After all … insurers are in the business of risk …

Climate Products © Zurich Financial Services 7 Underwriting for a Sustainable World:8/24/2009 What Do Insurers Need to Assist Stakeholders to Adapt to and Mitigate Risk of Climate Change ? Insurers must be allowed to use their core skills to send risk based price signals – Higher cost should incentivize risk reduction – Government indemnity or pools which spread or mask risk may inadvertently increase moral hazard and overall risk Climate Policy that addresses governance gaps – Government should consider building code changes that recognize climate patterns and incorporate relevant resilience standards – Policy makers must consider new / emergent resource / rights conflicts that present in a non-fossil fuel paradigm Climate Policy that enables markets to function properly – Incentives should be constructed carefully to avoid moral hazard increase and market instability – Transition from subsidy to independence must be mapped Climate policy that recognizes the regional nature of climate change – One size does not fit all impact risks – Solutions should be regionally tailored but globally aligned / compatible

Climate Products © Zurich Financial Services 8 Underwriting for a Sustainable World:8/24/2009 Insurance Can Be Applied to Facilitate Mitigation & Adaptation … Insurance focuses on risks to private assets Insurance is the ultimate economic shock absorber Climate Change is about risks to both private assets and public good The Key : Find the Intersections Land use Power Water Transportation Focus on public / private partnership Insurers are creating products today to facilitate adaptation and mitigation to climate change risk …

Climate Products © Zurich Financial Services 9 Underwriting for a Sustainable World:8/24/2009 Innovation: New technology & new land use new business models; new insurance needs to meet the 2050 Targets

Climate Products © Zurich Financial Services 10 Underwriting for a Sustainable World:8/24/2009 Current Zurich climate change product activities Insurance products responsive to government legislation, consumer and policy creating market demands 1. Carbon credits a. Political risk coverage for carbon credits b. Carbon credit securitization for multilateral and multinational banks lending to CDM projects 2. Motor a. Discounts for hybrid vehicles b. Pay-as-you-drive auto insurance: telematics / other basis - commercial (in process) 3. Alternative energy: full suite of p/c coverage Solar Wind Hydropower Biomass Geothermal Wave / tide (under review)

Climate Products © Zurich Financial Services 11 Underwriting for a Sustainable World:8/24/2009 Current Zurich climate change product activities Insurance products responsive to government legislation, consumer and policy creating market demands 4. Directors and Officers Coverage extension for climate related / environmental mismanagement claims 5. Green Building Construction Wrap: GL / WC / PI for “green” building projects 6. Recovery, buyback and disposal structured insurance of solar panels (WEE Directive) 7. Energy conservation insurance product warranty (under consideration / review) derivative based coverage structures 8. Carbon capture and sequestration CCSA GSFA

Climate Products © Zurich Financial Services 12 Underwriting for a Sustainable World:8/24/2009 Current Zurich climate change product activities 9. Green Edge / Better Green: Property coverages: commercial and personal lines a. Green re-build extensions – addresses efficiency and sustainability b. Off-grid power BI extension – addresses DER c. Fortification / resilience recognition – addresses weather appropriate 10. Water Re-Use / Reinjection / Storm Water Run-Off Coverage (in process) Products and other responses to physical risks, consumer demands and public policy