Insurers May Cash In on Climate Change
Lawsuit risk. Insurance broker Marsh also is positioning itself as a corporate consultant on climate change, which it regards as a "megatrend risk," along with terrorism or pandemics. Marsh dispatched six executives on a leadership building/climate awareness expedition to Antarctica this year. The firm's white paper warned that beverage companies will need to be concerned about water availability in case of drought, and banks will have to worry if they have high-risk loan portfolios. Most significant, Marsh warned that it was unlikely that companies' current environmental policies would protect against lawsuits over climate change.
Courts so far have rejected carbon claims against energy firms, but future lawsuits may be a more predictable risk than hurricanes.
Swiss Re has been talking about similar ideas for more than a decade--perhaps not surprisingly, since as a reinsurer it takes on much of the catastrophe risk from front-line insurers. The company is now in the forefront of some potentially profitable businesses, such as the global market in weather derivatives, which mushroomed from $8 billion to at least $40 billion in just the past year. These financial instruments allow energy companies, farmers, and other businesses dependent upon weather (an estimated 30 percent of the U.S. economy) to hedge the risk of excessively hot conditions or drought. "Wherever there is a risk," says Ivo Menzinger, head of sustainability for Swiss Re, "there is also an opportunity."
Of course, for those who buy insurance industry services, that also means new costs. Forget what's happening in Washington, D.C. The incentive for climate change action may come not from politicians but from a marketplace that is already raising the price of protection.