1

Elayne GraceSustainability Research ManagerInsurance 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 1961-90 average

1990’s

the

warmest

Decade

Warmest

years

1998 and

2001 -

2003

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

Top 20 Insurance Disasters at January 2004

'84 '92 '74 '74 '96 '03'67'76'73 '71'86

'03 '91'83'74 '85'90

'74

'98

'99

-

500

1,000

1,500

2,000

2,500

Insu

red

prop

erty

loss

in 2

004

equi

v $M

50% of events are

hailstorms

All weather related except

Newcastle earthquake

18/3/1990

14/4/1999

21/1/1991

3/10/198628/10/1995

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 Cyclonewind speeds

2.2 C mean temperature increase

17-28% increase bushfires1 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 minuteprecipitation Floods

2.2 C mean temperature increase

Cyclone

Change in climateHazard Resultingchange in hazard

Source: Mills et al(2001)

Small changes in hazard intensity can lead to multiple increases in damages

0

100

200

300

400

500

600

700

Under 20 knots 20-40 knots 40-50 knots 50-60 knots

% I

ncr

ease

in

Dam

ages

25% increase in peak gust causes 650%

increase in building damages

NSW, NRMA Building Insurance only

Source: Sydney Morning Herald 25th August 2003

Australia: Highest emissions per capita &

3% of industrialised countries

0

200

400

600800

1000

1200

1400

Fran

ce Italy

Austr

alia UK

Cana

da

Germ

any

Japa

n

USA

Peaks at

6098 Mt

0

5

10

15

20

25

30

Franc

e Italy

Austr

alia

UK

Cana

da

Germ

any

Japa

n

USA

Total GHG Emission comparison (MT CO2 –e)

Per capita emissions comparison ( T CO2 per person)

3% of Annex 1 emissions.Higher than France & Italy

(1/3rd population)

Highest per capita emissions

Source: Australia Institute

IAG’s approach

2 Supply chain

Helping to make our suppliers/ supply chains cleaner and safer – over 11,000 suppliers (smash repair, building, white good procurement)

1 Internal

Researching climate change, reducing IAG’s environmental footprint, driving cultural change

3 Customers & community

Sharing knowledge with our customers & working with our community– over 4 million customers

Qld TCs: Extreme Events

840850860870880890900910920

2001

-20

10

2011

-20

20

2021

-20

30

2031

-20

40

2041

-20

50

Decade

Cen

tral

Pre

ssur

e hP

a

GHG Extreme

No GHG Extreme

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 industryEncouraging 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

CoastFlood regions

Two 100 year events in 2

yrs

Claims cost: NZ flood

Flood research

2004 NZ$ 112m2002 NZ$ 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 1990. $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

  

WE ONLY HAVE 1 OF THESE...

Thank you - For further information please contact:Elayne.grace@iag.com.au