Tuesday, December 21, 2010

Insurance and the Climate

“Since when do insurance companies worry about climate research?” you might ask. If so, you should ask RSA Insurance Group, a global insurer headquartered in the UK. RSA in Canada operates mainly in marine insurance, but the message their behaviour is demonstrating is will have significant effects across the whole insurance field, even for non-medical life insurance.

RSA recently announced an official alliance with the World Wildlife Fund world-wide. The mutual synergy upon which this relationship is based qualifies as both “the right thing” as well as a business interest. It is simply a win-win situation.

If anyone can actually express a climate change in probability figures, then it must be insurance analysts. However, insurers cannot always work out what lies ahead specifically enough. Following the floods and droughts around the world, insurance companies bumped into considerable claims and thus had to pay unexpected compensations on those of their insurance products that are linked with the state of temperature, weather, and climate. This signalled to them that they were unable to assess their products’ riskiness accurately. And risk being the elementary notion underlying the entire insurance business, something had to be changed.

Thus, this experience and the general involvement of RSA with marine insurance were what prompted RSA to look for information, opinions and support at WWF. They are interested in the developments of the global environment - those that WWF examines so intently. WWF performs numerous analyses in order to understand animals whose life is largely influenced by the smallest changes in the climate. Through helping WWF to do what they are best at, the RSA group will benefit from more trustworthy forecasts. Thus, the insurer will be able to ascertain its risk better, charge for its products more adequately and steer clear of disproportionate outlays.

Because the enhanced estimates should be publicly available, i.e., to every other insurer, the effect on competition between companies is going to be minimal. At most, more perfect competition will press down policy prices for insurees. On the other hand, wild species will welcome the partnership between RSA and WWF anyhow.

Lots of businesses are learning that an eco-conscious business model may not only save them substantial amounts of money, but also please their customers along with the public in one fell swoop. The spirit of this mind-set shift can be sensed around global enterprises such as Sony Corporation, which only uses recycled paper for all administrative work, PricewaterhouseCoopers, also contemplating a global change towards more sustainable offices, and Adobe winning awards for very small-footprint office buildings using modern technologies numerous times.

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