The world’s leaders were in Copenhagen to discuss climate change and, potentially, set new targets for reducing greenhouse gas emissions. We asked four leading firms for their hopes for the UN summit, and to spell out how they can contribute to the battle against carbon
Prof Peter Höppe, head of geo risks research, Munich Re
It is typical of important negotiations that results are only announced after long nights of hard bargaining. Only after all the stops have been pulled out, with talks on the brink of failure, is a breakthrough made. That is my hope for the summit in Copenhagen.
The fact is that very little has emerged so far except political statements. In July, for the first time, the government heads of the G8 states, plus China and India, backed the goal of limiting the rise in temperature to 2°C above pre-industrial levels. This implies that by 2050 carbon dioxide emissions would have to fall by 50% globally and by 80% in the industrialised countries or the target will not be met.
But what are the commitments of individual countries? The EU has led the way by announcing a cut of up to 30% by 2020, and the USA has said it will identify emission reductions at Copenhagen. So there is movement in the discussions again.
At the very least we urgently need a framework agreement in Copenhagen. So far, global warming has averaged around 0.7°C, and it is evident that the number of weather-related catastrophes is increasing. Climate change may become very costly. Expense in the long term would far exceed the costs incurred in taking measures now to keep it manageable.
Hence an appeal to the negotiators: please agree, and quickly. As the negative effects of climate change can no longer be prevented, particularly in developing countries, solutions must be found for such states, financed by industrial nations via emissions trading as a form of ‘polluter compensation’. The Munich Climate Insurance Initiative, supported by Munich Re, has made proposals along these lines.
We will all benefit from climate protection – from lower losses due to natural catastrophes and from the economic potential of technologies that contribute to climate-neutral energy production.
If we fail to take climate protection measures now, we cannot expect to make up for this in a couple of decades’ time. In the end, the generations to come will have to pay the price.
Andreas Spiegel, senior climate change adviser, Swiss Re
It will take a collective effort from all areas of society to reduce greenhouse gases. Ideally Copenhagen will set out the political and economic framework for how developed and developing countries plan to approach this challenge.
In this context the insurance industry can contribute experience and know-how in integrated risk management and offer a broad set of new and enhanced products that will help make our societies more resilient.
The Economics of Climate Adaptation (ECA) report, issued in September 2009, has evaluated the costs of climate change in a diverse selection of locations worldwide and offered recommendations on cost-effective adaptation measures that should be undertaken to limit these exposures.
The ECA report finds that adaptation is necessary even assuming current climate patterns; if current development patterns continue, climate-related losses could cost developing countries up to 19% of GDP by 2030.
The report has reinforced the importance of insurance measures. They play a critical role in addressing low-frequency, high-severity weather events such as flooding, where they are often the most cost-effective measure.
In line with the best scientific thinking, we believe the case for action on climate change is overwhelming. If emissions continue to rise at the rate of the past 30 years, atmospheric concentrations will potentially increase to 700 parts per million or more, leading to a long-term global increase of 6°C or more.
This makes the negotiations towards a post-Kyoto agreement in Copenhagen vital. Despite the financial crisis and pressure on national budgets, we need a long-term, market-based policy framework to emerge from Copenhagen, with clear reduction targets wherever possible and a ‘cap-and-trade’ carbon market system.
Ideally, we need a reduction of 20-30% by 2020 and 50-80% by 2050 compared with 1990 levels.
Simon Lee, chief executive, international businesses, RSA
When world leaders join together in Copenhagen to discuss climate change, we need to be very conscious of the impact these discussions will have on the insurance industry.
Insurance is all about helping customers manage risk. The industry is able to help customers understand the level of risk they face and underwrite that risk to give security, but also to respond when the worst happens. We touch every part of the economy, helping customers prevent losses and get their lives back on track.
Climate change poses many risks to the planet and our industry, and we have a vital role to play in helping the transition to a low-carbon global economy. This presents insurers with opportunities and the summit provides an excellent platform for these.
The diminishing role of the Arctic in helping to mitigate the effects of climate change is cause for concern. More severe or frequent weather conditions hit our customers and affect our business. In recent years, in the UK, Canada and elsewhere, we’ve seen in stark terms the devastating impact of flooding and windstorm damage. This directly affects us but, crucially, it also affects our customers and we cannot and should not duck the issue.
Behaving responsibly and ethically in managing our businesses directly influences the environment, the people and the communities in which we operate.
As an industry, our approach must be practical and focused on the main business impacts; delivering commercial benefits while recognising the value we add to society. Sustainability is going to be key to the future success of business. A business that can manage this well shows it is a well-managed business.
Andrew Torrance, chief executive, Allianz and chair, ClimateWise
As our political leaders take their seats at the negotiating table in Copenhagen, their goal is to deliver a global deal on climate change that will arrest the rise in average temperatures at a maximum of 2°C.
ClimateWise, the global collaboration of leading insurers, fully supports this aim. We believe that the climate crisis poses a systemic risk to the global economy.
Developed countries should agree to a 2020 emissions reduction target of 40% over 1990 levels and major developing countries should agree to a substantial reduction relative to business as usual. This is the boldest set of targets backed by any industry group and reflects our professional duties as managers of risk. We must seek the best chances of success in reducing the impacts of climate change or there will be devastating consequences for the world.
Eight-six per cent of ClimateWise members have disclosed their greenhouse gas emissions using a globally recognised standard, up on 56% last year. However, not all of them have begun to use this data to develop targets on how to reduce emissions – a challenge for 2010.
Policymakers are facing enormous pressures from powerful industries that lobby governments hard in an attempt to limit the impact a global deal could have on the levels of carbon they currently send into our atmosphere.
There is a danger that many of these justifications for maintaining the status quo may be attractive to those at the UN summit. But I believe the insurance industry, with its long-term and holistic view of the risks faced by governments, economies and societies around the world, is now speaking convincingly with one voice to demand an ambitious pathway towards the required emissions reduction. This journey simply must not be delayed.
A fair wind for renewables
Some countries have done better than others in tackling the issue of reducing greenhouse gas emissions. The European Environment Agency says the UK, France, Germany, Greece and Sweden have become climate heroes, having already met their 2012 Kyoto targets for reducing emissions.
The targets have been met in various ways, renewable energy projects among them. But a recent report says it is not yet time for those countries to relax. The Institution of Mechanical Engineers has warned that UK government plans for carbon emission cuts of 80% by 2050 are impossible. The targets are more likely to be met by 2100 because there is not enough time or capacity to build the wind turbines and extra nuclear power stations required.
The report says those targets would require an extra 16 nuclear power stations and 27,000 wind turbines by 2030. Dr Tim Fox, head of environment and climate change at the institution, outlines the infrastructure problems.
“Analysis shows that by 2013 we won’t have enough of the specialist construction vessels to assist in the construction of the offshore wind farms. And there’s not enough turbine manufacturing capacity in the world to be able to deliver the turbines to all the projects that need them by 2016.”
Infrastructure has been at the heart of problems for insuring offshore wind farms. Chris Anderson, chief executive of consultancy 4c Offshore, says there has been a mistaken belief that it will be simple to transfer the construction knowledge gained on land offshore.
He says energy firms including oil and gas giants had thought the transformation to offshore renewables would be straightforward and have been caught out by the new risks.
The next challenge, he says, is the number of developments in the pipeline: 10,000 in and around Europe. But Anderson warns: “A lot of the offshore technology is relatively new.”
He is concerned many developers only think about insurance once work is underway, but it should be agreed before construction. Although some countries are introducing an insurance requirement before work can begin, it is not mandatory everywhere.
Then there’s the problem of finding insurance – there are just four or five primary players in Lloyd’s and a few in the company market. The sector is attracting new insurers, but for now insurers and reinsurers are able to cherry-pick the best risks.
This message is coming from industry players too. Fraser McLachlan, chief executive of underwriter GCube, says his firm has been involved in renewables for 15 years, 90% of it wind energy. “As the industry moved offshore we had to take a view of whether we followed,” he says. He admits the move resulted in “quite a lot” of claims and, like Anderson, thinks many in the industry have been naïve about the transfer from land to sea.
High-voltage cables have been a key issue. “An anchor drags, people damage the cable and for every foot of cable you’re looking at a £1m repair bill.” Claims have totted up to £40m in a five years, but he believes the industry has come “through the pain barrier”.
Projects are growing in size and number, and as £1bn projects emerge, insurance capacity is growing to match – GCube has about $650m available.
Steve Kelly, engineering portfolio manager at RSA, is also bracing himself for a surge in the sector. “Through 2007, there was a boom, but since then the economic climate has had an impact.” He believes the Copenhagen summit will give the sector a boost, not just with government investment but also from multinationals looking to improve their green reputations.
He notes the move from small projects offshore to large developments further out to sea, but warns that although the sector is maturing fast, the move to deep water involves new problems in a harsher environment.
Finding reinsurance cover for his primary book has been relatively straightforward, Kelly says, and there is available capacity. He sees it becoming a much larger niche business rather than a core business, but the future is bright.
Liz Booth is a freelance journalist