Insurers call for action at Copenhagen summit
11 November 2009
In December, delegates from 192 countries will meet in Copenhagen to hold landmark discussions aimed at hammering out a new global agreement on climate change.
Insurers are calling for all nations at the summit to make binding commitments to deep cuts in their greenhouse gas emissions to try to limit the effects of climate change.
They also hope delegates will recognise that insurance offers an ideal mechanism to help smaller and developing nations come to terms with the potentially devastating effects of global warming.
With growing scientific evidence that humans are responsible for present-day global warming, policymakers want a new agreement in Copenhagen that is bigger and bolder than its predecessor, the Kyoto Protocol.
Agreed back in 1997, Kyoto’s targets only apply to a small number of countries and its first-phase targets are set to expire in 2012.
In June, the G8 and a number of large developing countries agreed that the average temperature rise should be limited to 2C (3.6F) to keep in check the consequences of climate change.
They want the Copenhagen treaty to gain widespread international agreement to curb greenhouse gases in order to keep the world temperature rise within that limit.
Negotiations Hit Impasse
But there are already doubts over whether a robust agreement can be reached in Copenhagen, because the United States and China, the world’s two biggest polluters, are at loggerheads over the negotiations.
The U.S., which did not sign up to the Kyoto Protocol, does not want to use Kyoto as the basis for talks in the Danish capital. Instead, it wants a new agreement in Copenhagen in which all countries sign up to lower their emissions.
China, on the other hand, does not want the Kyoto agreement to be abandoned, but wishes it to be the foundation for negotiations in Copenhagen.
The problem with Kyoto for the U.S. and other industrialised countries, particularly the European Union, is that the protocol doesn’t call on developing nations to cut their greenhouse gas emissions.
Back in the 1990s, when it was being negotiated, these states weren’t big contributors to climate change. But the surging economic development of China has meant it has become the world’s biggest polluter.
For many developing countries and smaller states, the U.S. has been long on rhetoric about its desire to cut its greenhouse gas emissions, but short on specifics so far on what it will actually do.
Both China and the United States have said they will curb their emissions, but, to date, neither has given specific figures on how much they are prepared to cut.
Implications of Deadlock
The fear is that the Copenhagen summit may be able to agree only a very watered-down treaty, with important areas left out of the accord to be discussed in further talks that may drag on well into next year.
But insurers, who are already paying out $100 billion a year in weather-related claims, say time is running out for decisive action to tackle global warming.
In late October, ClimateWise – an alliance of leading insurers, including Lloyd’s, focused on reducing the effects of climate change – warned: “the climate crisis poses a systemic risk to the global economy.”
It called for developed countries to agree to a 40% reduction in their emissions in the Copenhagen treaty and for developing nations to agree to deep cuts also.
These steps are crucial to ensure global temperatures do not rise by more than 2C, ClimateWise argued. If policymakers do not tackle the issue, ClimateWise’s Chairman Andrew Torrance warned that some markets might become uninsurable.
There are stark environmental dangers of getting no agreement on curbing emissions at Copenhagen, says Trevor Maynard, Lloyd’s Emerging Risks Manager.
“At Lloyd’s we’re used to dealing with uncertainty. We have to plan for the one-in-250 year events, the worst-case scenarios. But it seems like policymakers aren’t doing that. Some of the most adverse outcomes of getting no agreement really are terrifying. We know they’re not the most likely outcomes, but if nothing is done to avoid them then it makes them more likely.”
Insurers could play a key part in tackling the climate change problem, by using their expertise in risk management and in pooling catastrophic exposures.
The industry is keen for the summit to establish a sizeable fund to allow the most exposed countries to help manage the economic risk of global warming.
There’s no doubt it may hit them hard. A report from the Economics of Climate Adaptation Working Group in September said climate change risks could cost developing nations up to 19% of their GDP by 2030.
This has been taken up by the Alliance of Small Island States (AOSIS), which warns its members face oblivion unless decisive action is taken in Copenhagen. It wants the international community to set up a fund to channel money and technology to developing and smaller nations to help them to adapt to the consequences of climate change.
Role for Insurance
AOSIS has also called for the creation of an insurance mechanism to limit the economic impact of the effects of climate change on exposed populations.
The 2007 Bali Action Plan on climate change, which provided a roadmap for the Copenhagen summit, identified insurance as a potential element in a new climate change agreement.
The Munich Climate Insurance Initiative, in a recent paper published with the United Nations International Strategy for Disaster Reduction, concluded: “insurance has important potential to reduce disaster risk and advance adaptation.”
The UK Prime Minister Gordon Brown has called for a partnership between the public and private sectors to help mitigate the economic losses of climate change. In a speech in June he stated: “We need to find innovative ways in which public finance can leverage private sector investment – for example through guarantees and insurance schemes, where public support can help bear risk."
In October, 17 countries responsible for around 80% of global emissions, known as the Major Economies Forum (MEF), called for the international community to provide more funds to help societies adapt to climate change.
Microinsurance can play an important role in protecting the most vulnerable members of society from the growing peril of climate change. Advocates hope initiatives to promote insurance to low-income communities may be included in the Copenhagen accord.
By 2015, the number of low-income people affected by climate related disasters is predicted to increase by 50%. But in developing countries, less than 3% of household and business losses from natural disasters are insured. Insurance can often prevent a low-income family slipping into destitution after a drought, flood or typhoon.
The UK government is to champion such a scheme. In a recent policy paper, the UK Department of International Development stated: “The UK will help to increase insurance coverage for poor people by working with the private sector and international financial institutions to pilot different insurance approaches in three countries and help develop climate insurance markets that offer affordable products."
Last updated on 04 Jan 2010
