As climate change claims heat up, insurance industry says we need to adapt: Don Pittis - Action News
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BusinessAnalysis

As climate change claims heat up, insurance industry says we need to adapt: Don Pittis

More than 40 years ago, the insurance industry was a leader in warning about the impact of climate change. But as the number of weather-related disasters soars, experts say the business must focus on adapting to climate change, rather than preventing it.

Adaptation, not mitigation, will save the industry money now

Intense weather is increasing claims in the insurance industry. While insurers support climate change mitigation, the bottom line requires they increasingly focus on adaptation. (Reuters)

"They lose sleep every time it rains really hard because they know they're going to get flooded basements," says Jason Thistlethwaite, a University of Waterloo professor who studies the insurance industry, about people in the business.

Thistlethwaitesays thesame thing happened when the news of the damage in FortMcMurray, Alta.,came through, "as soon as they heard that 1,600 structures number."

With all those buildings burned, what the insurance industry expects to be Canada's most costly naturaldisaster is going to affect Canadians, andnot just in higher rates.

As the director of Waterloo'sClimate Change Adaptation Project,Thistlethwaite'sresearch is on the leading edge of the Canadian insurance industry's attempt to cope with climate risk.
The insurance industry says it has seen global climate disasters such as droughts, floods and fires increase as temperatures rise. (Reuters)

Some industries seem tohave had trouble believing the scientists who warn that humanactivity is warming the planet by releasing long-sequestered carbon.

The insurance business is an exception, as EricRegulypointed outin a 2013article titledNo climate-change deniers to be found in the reinsurance business.

Early warning

"What is remarkable is that Munich Re first warned about global warming way back in 1973, when it noticed that flood damage was increasing," Reguly wrotein the Report on Business Magazine.

Munich Re is one of the giant groups, including Swiss Re and Lloyds,that act as an insurance company for insurance companies, giving them an overview of changing global risk.
The German reinsurance company Munich Re began warning about climate change more than 40 years ago when it noticed weather-related claims begin to rise globally. (Reuters)

Twenty years before theRio Earth Summit,where the world's countries first focused on a global strategy to fightclimate change, the insurance industry had recognized that claims were rising more quickly than their risk tables had told them theyshould. Their researchpointed straightat climate change.

Here in Canada, the industry also recognizes it has a problem, hence theIntact Centre on Climate Adaptation (ICCA). The insurance company that sponsors the centre,Intact, formerly known as the ING Group, is the largest home and property insurer in FortMcMurray,according toICCAhead BlairFeltmate.

Cause and effect

As withall climate change arguments, it is hard to prove an absolutecause-and-effect relationship between climate andthe recent Canadian increaseindamage claimsfrom fires, floods, wind and ice storms.

But for literally hundreds of years, the insurance industry has been the master of statistics. It goes back to the days whenunderwriters sat in Lloyd's Coffee House in London in the1700sandcalculatedthe odds that acargo ship would sink before returning from the Far East. And they don't like to get it wrong.
The insurance industry has been learning how to calculate risk at least since the 1700s when underwriters gathered at Lloyd's Coffee House in London to discuss the odds of cargo ships sinking. (Wiki commons)

"What we have is evidence that property-related insurance losses from extreme weatherare increasing not only in Canada, but also internationally," Thistlethwaite says. "And this aligns with climate change research that suggests that the warmer the atmosphere is, the more extremeweather you're likely to get."

Unfortunately for those looking for a climate change champion, the fact is we cannot count on the insurance industry to save us. As businesses, they must look at the bottom line.

'De-risking'

"There is no insurance company I know that's not an advocate for working to minimizegreenhouse gases," says theICCA'sFeltmate.

But he says from a business point of view, the industry decided in the past two or three years thatit must focus more onwhat he calls "de-risking" insured properties spending toadaptto climate change as the effects worsen.

As the insurance industry learns more about how to adapt, those new strategies will be passed on to homeowners, who will be encouraged to do things like directrunoff away from their houses, install devices to prevent sewer backup,cover window wells, or make their homes more fireproof.

Even if not all homeowners play along, encouraging safe practices cuts statisticalrisk and benefits the bottom line of insurers as well as homeowners.

"The benefits of adapting are local if you de-risk a system. Whatever dollarsyou spend in that attempt to de-risk, you realize those benefits locally," Feltmate says.
A Fredericton, N.B., homeonwer shows the flood level in her basement after city sewers backed up. The insurance industry is looking at ways to help homeowners adapt to increasingly severe weather. (CBC)

Thistlethwaitesays one strategy would be to reward homeowners in specific risk zones for adding climate adaptations, oreven make it a requirement,but insurance companies need to do more research first.

"They really don't have a good idea of how much it saves an individual home when you install a backwater valve or put up fireproof shingles," he says.

But for now, people in the insurance industry are hard-nosed realists. They expect weather disasters caused by climate change to get worse before they get better. So we better get used to it.

Follow Don on Twitter@don_pittis

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