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The Greening of Insurance

  • Lawrence Berkeley National Laboratory (Retiree Affiliate)
Every sector of the economy telegraphs
climate risks to its insurers. In turn,
climate change stands as a stress test
for insurance, the world’s largest industry,
with U.S. $4.6 trillion in revenues, 7% of
the global economy ( 16). Insurers publicly
voiced concern about human-induced climate
change four decades ago ( 1). I describe indus-
try trends, activities, and promising avenues
for future effort, from a synthesis of industry
progress in managing climate change risk [see
supplementary materials (SM)].
Increasingly, multifaceted weather- and
climate-related insurance losses involve prop-
erty damage, business disruptions, health
impacts, and legal claims against polluters.
Worldwide, insured claims that were paid
for weather catastrophes average $50 billion/
year (about 40% of total direct insured and
uninsured costs); they have more than dou-
bled each decade since the 1980s, adjusted
for infl ation ( 7, 8). Insurers must also adjust
to risks emerging from society’s responses to
climate change, including how structures are
built and energy is produced.
Where there are risks, there are also oppor-
tunities. Responding to the push of sharehold-
ers and regulators and the pull of markets,
a trio of global initiatives [United Nations
Environment Programme Finance Initiative
(1995), ClimateWise (2007), and the Kyoto
Statement (2009)] has aggregated 129 insur-
ance fi rms from 29 countries (table S1). Mem-
ber commitments include supporting climate
research, developing climate-responsive prod-
ucts and services, raising awareness of climate
change, reducing in-house emissions, quanti-
fying and disclosing climate risks, incorpo-
rating climate change into investment deci-
sions, and engaging in public policy. Since the
mid-1990s ( 3), these and many other insur-
ers, reinsurers, intermediaries, brokers, indus-
try associations, catastrophe-loss modelers,
and regulators have engaged in this work (see
the fi gure) (fi g. S1, A to C), often in partner-
ship with universities, development agen-
cies, nongovernmental organizations, foun-
dations, think tanks, and governments ( 9).
These increasingly sophisticated efforts were
sustained through the economic malaise of the
past few years; one-fi fth of the activities iden-
tifi ed in the fi gure began after 2008.
Climate Science, Adaptation, and Mitigation
As past experience is an ineffective predic-
tor of future losses, many insurers are using
climate science to better quantify and diver-
sify their exposure, more accurately price
and communicate risk, and target adaptation
and loss-prevention efforts (table S2). Insur-
ers also analyze their extensive databases
of historical weather- and climate-related
losses, for both large- and small-scale events
( 711). Insurers from North America, Asia,
and Europe have expanded their collabora-
tions through the three latest Intergovern-
mental Panel on Climate Change assess-
ments into projects such as harmonizing
economics-based insurer catastrophe mod-
els with climate models. Insurers’ models
extrapolate historical data rather than simu-
late the climate system, and they require out-
puts at fi ner scales and shorter time frames
than climate models.
Insurers can reactively adapt to rising
losses by tightening availability, prices, and
terms. Instead, some have sought to help vul-
nerable customers improve their resilience to
a changing climate. Strategies include fi nan-
cial and physical risk management, often
in collaboration with noninsurance enti-
ties (table S3). Insurers have championed a
broadened defi nition of sustainability that
includes resilience to disaster and a low car-
bon footprint. Beyond signaling that loss-
prone development is unsustainable, insur-
ers are supporting interventions with bene-
ts for both emissions reduction and adapta-
tion (table S4 and fi g. S2). Integrated actu-
arial and environmental science is enhancing
adaptive capacity to climate change in the
developing world, where poor populations
enjoy little access to insurance. Decades ago,
public and nonprofi t sectors offered microin-
surance (small premiums for modest cover-
age), with commercial insurers later adding
tens of millions of policies for life, health,
and property (table S5). Some employ para-
metric and index-based triggers for climate-
sensitive crops and livestock by using remote
sensing. Others promote adaptation, e.g.,
improved soil management.
Numerous insurers aim to curb green-
house-gas emissions from homes, businesses,
transport, industry, and agriculture (table S5).
They have brought to market at least 130
products and services for green buildings.
Many pay claims that fund rebuilding to a
higher level of energy effi ciency after losses.
Insurers have introduced at least 65 offerings
for renewable energy systems.
Some climate-change mitigation technol-
ogies align with lower-risk behavior. Nearly 3
million pay-as-you-drive policyholders enjoy
more accurate roadway accident premiums
using telematics to verify distances driven.
This price signal could reduce U.S. driving
by 8%, worth $50 to $60 billion/year, thanks
to reduced congestion and lower probability
of accidents, while reducing cross-subsidies
from those who drive less than average to
those who drive more ( 12). Risk-based pre-
mium credits are also offered for low-emis-
sions vehicles and green buildings (table S5).
Other products insure fi nancial shortfalls if
energy savings or low-emissions power gener-
ation projects underperform or manage risks
in carbon-trading transactions, ranging from
carbon release from wildfi res to infrastructure
appropriation by foreign governments. Insur-
ance strategies assuming these risks and min-
imizing losses align with the broader policy
objectives of verifi able, bankable, and persis-
tent emissions reductions.
Technology, Governance, and Policy
When risks are too great or undefi ned, insurers
withdraw coverage or increase prices. Climate
change mitigation and adaptation present dual
challenges in this regard: unintended risks
(e.g., nuclear power and weapons prolifera-
tion) and climate vulnerabilities (e.g., biofuels
and water needs) (tables S6 and S7). Insurers
abhor unquantifi ed and unpriced risks, as well
as market distortions, such as equally subsi-
dizing technologies that have divergent risk
profi les ( 13).
Emerging technologies lack the opera-
tional history desired for underwriting. The
most unwieldy of these are “climate-engineer-
ing” techniques, ranging from carbon capture
and storage (CCS) to artifi cially modifying
the radiative properties of the atmosphere.
Insurers have entered the CCS market in a cir-
cumscribed manner, excluding riskier strate-
gies or fi nancial arrangements, limiting cover-
age to short time frames, and ceding long-tail
risks to the public sector. Conversely, energy
effi ciency is arguably the lowest-risk mitiga-
tion strategy (followed by renewables), with
abundant benefits ( 14). Societal dithering
forces reliance on approaches that are riskier
and less amenable to insurance underwriting.
The Greening of Insurance
Evan Mills
Insurance industry trends show how
market-based mechanisms support
climate change mitigation and adaptation.
Lawrence Berkeley National Laboratory, Berkeley, CA
94720, USA. E-mail:
Published by AAAS
on December 13, 2012www.sciencemag.orgDownloaded from SCIENCE VOL 338 14 DECEMBER 2012 1425
Insurers are dually exposed
to internal governance risks
(e.g., underestimating cli-
mate-related losses) and those
taken by their customers (e.g.,
polluters). More than one in
four corporate directors antic-
ipate liability claims stem-
ming from climate change
( 15). Litigation often requires
insurers to furnish legal
defense and to pay damages.
Insurers have responded with
new liability products and by
excluding climate-change
claims where customer behav-
iors are unduly risky. Insur-
ance regulators and investors
are seeking climate-risk dis-
closure (table S8 and fi g. S3),
compelling insurers to for-
mally consider climate change in operational,
business, and investment practices. Liability
risks are rising as climate science becomes
more settled.
With $25 trillion in assets—equal to global
mutual funds or pension funds—insurers are
central players in world financial markets.
They have invested at least $23 billion in
emissions-reduction technologies, securities,
and fi nancing, plus $5 billion environmentally
focused funds (table S9 and fi g. S4).
Emissions from insurers’ energy-inten-
sive buildings, data centers, and business
travel are 12 megatons CO2/year with a
10-fold variation in carbon intensity (per
unit of revenue) across companies ( 9).
Scores of insurers have reduced their emis-
sions, with at least 26 carbon neutral (table
S10 and fi g S5).
Insurers have influenced public policy,
striking agreements on pricing risk and gov-
ernment’s role in risk management and shap-
ing land-use planning and energy policy in
many countries. They have engaged in cli-
mate policy forums since the mid-1990s ( 2,
3), including participation in the international
climate negotiation process. Lloyds of Lon-
don is one of the more prominent; they view
climate change as the industry’s number-one
issue ( 5). Insurers are uneasy with mercurial
policies on natural hazards and energy. Shifts
in public incentives or indemnity practices
can adversely influence risk-taking (moral
hazard), heightening insurers’ exposures.
From Risk to Opportunity
Climate-focused efforts have benefi tted mil-
lions of insurance customers and have mobi-
lized billions of investment dollars, although
public and policy-maker engagement in these
efforts remains low. Little climate-related
innovation has occurred in certain market seg-
ments, e.g., life and health (microinsurance
being an exception), maritime, aviation, and
heavy industries. Greater scale is needed if the
insurance industry is to realize its potential.
Independent auditors found an 88% com-
pliance rate among signatories of the Climate-
Wise principles (table S1) ( 16). Yet, many
companies remain on the sidelines or offer
only token gestures, perhaps because of insuf-
cient demand, ideological discomfort with
policy responses, inadequate science literacy,
or inertia to institutional change. Insurers face
external barriers as well. Some regulators and
consumer groups resist risk-based pricing and
insurer innovations ( 17).
It is argued by some that private insurers
have not effectively advanced climate change
mitigation and adaptation and that the risks
may even become uninsurable ( 18). Manda-
tory climate-risk disclosure identifi ed a broad
consensus on the relevance of climate change
among U.S. insurers, but only one in eight
companies have a formal strategy.
Public insurers could be similarly criti-
cized ( 19). As insurer of last resort (e.g., $1.3
trillion coverage for fl ood and $115 billion for
crops in the United States), they could learn
from their private counterparts. Governments
could boost demand for market-based “green
insurance” by using it in their own operations.
Promising scientifi c frontiers include loss
modeling under future climates, preferably
on a public-domain platform, to yield better
economic assessments and policy pathways.
Lacking are comparative risk-assessments of
climate-change response options to inform
research and development and policy needs
and to determine their insurability.
The insurance sector is a global clearing-
house for climate risks that affect every under-
writing area and investment. Where insurers
recoil in the face of climate change, consum-
ers will encounter acute affordability issues
accompanied by huge holes in this societal
safety net. But insurers’ efforts to date demon-
strate that market-based mechanisms can sup-
port greenhouse-gas emission reductions and
adaptation to otherwise unavoidable impacts.
References and Notes
1. Munich Reinsurance Co., Flood Inundation (Munich Rein-
surance Co., Munich, 1973).
2. J. Leggett, Eur. Environ. 3, 3 (1993).
3. E. Mills, J. Soc. Insur. Res. 1996, 15 (1996).
4. E. Mills, Science 309, 1040 (2005).
5. Lloyd’s, Climate Change: Adapt or Bust (360 Risk Project,
Lloyd’s, London, 2006).
6. Swiss Reinsurance Co., World Insurance in 2011 (Sigma 2,
Swiss Re, Zurich, 2012).
7. W. Kron et al. Nat. Hazards Earth Syst. Sci. 12, 535 (2012).
9. E. Mills, Geneva Papers Risk Insur. Iss. 34, 323 (2009).
10. S. Schmidt, C. Kemfert, P. Höppe, Assess. 29, 359 (2009).
11. Swiss Reinsurance Co., A hidden risk of climate change:
More property damage from soil subsidence in Europe
(Swiss Re, Zurich, 2011).
12. J. E. Bordoff, P. J. Noel, Pay-as-You-Drive Auto Insurance
(Brookings Institution, Washington, DC, 2008).
13. L. Patton, Eur. Bus. Rev. 2008, 3005 (2008).
14. E. Mills, Bull. At. Sci. 68, 67 (2012).
15. Lloyd’s, Directors in the Dock (Lloyd’s, London, 2008).
16. ClimateWise, The ClimateWise Principles: The Fourth Inde-
pendent Review (PricewaterhouseCoopers, London, and
University of Cambridge, London, 2011).
17. S. M. Tran, J. Sci. Technol. Law 14, 73 (2008).
18. L. R. Phelan et al., Environ. Policy Gov. 21, 112 (2011).
19. E. Michel-Kerjan, H. Kunreuther, Science 333, 408 (2011).
Acknowledgments: Research supporting this article was spon-
sored by the U.S. Department of Energy, U.S. Environmental
Protection Agency, U.S. Agency for International Development,
and Ceres.
Supplementary Materials
0 10 20 30 40 50 60 70 80 90 100
Engagement in given activity, by country (%)
Commitment to comprehensive response
Engaging in climate science and communications
Promoting loss prevention and adaptation
Crafting innovative insurance products
Providing technical services
Offering carbon risk-management or offsets
Financing customer projects
Investing in climate change mitigation
Leading by example: in-house carbon management
Disclosing climate risks
Aligning terms and conditions with risk-reducing behavior
Building awareness and participating in public policy
US UK Japan France Germany Other countries
Global insurance industry engagement in climate change adaptation and mitigation activities. As of late 2012, a total
of 1148 initiatives have emerged (largely in the past decade) from 378 entities in 51 countries, representing $2 trillion (44%)
of industry revenues. Count represents number of activities in each category. Details in SM.
Published by AAAS
on December 13, 2012www.sciencemag.orgDownloaded from
Supplementary Materials for
The Greening of Insurance
Evan Mills*
*To whom correspondence should be addressed. E-mail:
Published 14 December 2012, Science 338, 1424 (2012)
DOI: 10.1126/science.1229351
This PDF file includes
Materials and Methods
Figs. S1 to S5
Tables S1 to S10
Full References
Materials and Methods
This analysis groups insurer climate-change activities into 12 broad categories (Fig.
1 and fig. S1, A to C). Figure S2 illustrates climate change adaptation efforts with
mitigation synergisms. Time-trend analysis is possible in some cases, as illustrated here
for carbon risk disclosure (fig. S3), insurer investments in climate change mitigation (fig.
S4), and pursuit of carbon neutrality for internal operations (buildings, business travel,
business operations, etc.) (fig. S5).
The tabulated examples (tables S1 to 10) reflect the breadth of insurer-initiated
approaches to improving disaster resilience and adaptation to climate change, while
further reducing the risks through mitigation strategies such as buildings’ energy
efficiency, low-emissions transportation, carbon emissions trading, and investments in
renewable energy projects. The magnitude of progress or market uptake is quantified
where information is available.
The information is compiled from a variety of primary sources: company Web sites,
corporate social responsibility reports, filings with the Carbon Disclosure Project (CDP),
insurance trade press, academic journals, technical reports, and direct communications
with insurers. Initiatives that aggregate information from member insurers [e.g.,
ClimateWise (16) and the United Nations Environment Programme (UNEP) Finance
Initiative] are also reviewed. Most available information is self-reported by insurers, and
in some cases independently verified (e.g., PricewaterhouseCoopers audits the annual
ClimateWise reports). Many items are readily verifiable, e.g., whether or not a company
responded to the CDP, is a signatory to a particular agreement, offers a particular green
insurance product, or has conducted and published specific research.
Various decision rules are applied before including candidate activities. Multiple
activities of a similar nature are counted only once (e.g., responding to a given annual call
for climate-risk disclosure, multiple efforts at reducing in-house greenhouse gas
emissions, multiple years of corporate social responsibility reporting, or more than one
subsidiary through which products or services are offered). Routine activities, such as
rationalizing pricing, shifting to paperless customer correspondence, holding workshops,
encouraging generic disaster preparedness, offering weather derivatives, or providing
conventional insurance of renewable energy systems (which many insurers have done for
decades), are not tabulated here as they are mainstream or intangible activities, or are not
primarily motivated by responding to climate change risks. Similarly, “passive” activities
such as memberships in organizations (e.g., the U.S. Green Buildings Council) are not
logged. Also excluded are activities (i) with a tenuous “green” value, e.g., insurers
promoting global positioning systems (GPSs) in autos but not accompanying it with –
premiums differentiated by distance driven (12), or (ii) where companies appear to be
bundling or repackaging conventional offerings, rather than truly innovating to fill
coverage gaps or carefully tailoring coverage to the unique features of “green”
technologies. Mandatory and prospective activities are not included.
These tallies are neither a measure of the relative quality nor the impact of the
activities, or of geographical reach. No weighting is applied. Although sampling bias
cannot be ruled out, every effort has been made to gather information from around the
world and from all sizes and types of insurance entities.
Fig. S1. As of October 2012, 378 insurance entities based in 51 countries had collectively
initiated 1,148 activities related to managing the risks of human-induced climate change
(9, plus updates). These activities have emerged largely in the past decade, with the
earliest dating to 1973 (1). Most major insurers and all major reinsurers and insurance
brokers have engaged to varying degrees, collectively representing $2 trillion (44%) of
industry revenues and 2.5 million employees. See key to activity types (A), next page.
(B) Countries conducting more than 5% of all activities are shaded individually. (C)
These activities are conducted by several types of entities, including intermediaries and
modelers that provide services to insurance companies.
Key to Fig. S1A.
Commitment to a comprehensive response: defined by participation in the ClimateWise group, UNEP
Finance Initiative, and/or Kyoto Statement of the Geneva Association. The terms of the associated
agreements are characterized by a commitment to addressing climate change that stretches across the
insurance enterprise, from products to investment to corporate governance. Participating companies are
listed in table S1. Participation signals a systematic (rather than piecemeal) approach, coupled with a
willingness to make that commitment public. In the case of ClimateWise, participants also agree to
annual reporting and independent audits of compliance.
Engaging in climate science and communications: defined by the funding or conduct of research on
climate change, and the presentation of climate science to stakeholders. Includes analyses of historical
data, forward-looking modeling, field-based research, and integrated assessments.
Promoting loss prevention & adaptation: defined by customer-focused activities or inducements to
advance the state of the art in weather- and climate-related disaster resilience generally, and climate
change adaptation in particular.
Aligning terms & conditions with risk-reducing behavior: defined by activities that simultaneously
reduce the risk of insured losses while contributing to climate change mitigation. A prominent example
is mileage-based insurance, which provides discounted premiums for reduced driving to lower the
probability of roadway accidents as well as emissions of greenhouse gases from vehicles.
Crafting innovative insurance products: defined by insurance contracts and provisions that remove
barriers to adoption of climate change mitigation practices (e.g., energy efficiency or renewable energy)
on the part of insurance customers, often proactively incentivizing better practices (e.g. by
differentiating premiums for hybrid vehicles or green buildings). Includes new products that fill
coverage gaps, e.g., microinsurance for weather-related hazards in developing countries.
Providing technical services: defined by engineering or financial services offered to customers to identify
and manage risks associated with climate change responses or otherwise assist in the implementation of
improved practices. Examples include energy audits, carbon-footprint accounting, and adaptation cost-
benefit assessments.
Offering carbon risk-management or offsets: defined by products that assist customers in managing risks
associated with carbon-reducing projects, including risks of associated financial transactions such as
carbon trading. In some cases, insurers couple emission offsets with their core products, e.g., vehicle
emissions offsets with auto insurance.
Financing customer projects: defined by insurers offering debt financing to customers or other entities for
climate change mitigation or adaptation projects.
Investing in climate change mitigation: defined by direct investment in climate change mitigation
projects, e.g., an equity stake in a wind power development or a company manufacturing an energy-
efficient technology. Also includes investments in funds by using selective environmental screening
processes that incorporate climate-change factors. In some cases, insurers are disinvesting in companies
with risky environmental practices.
Building awareness and participating in public policy: defined by specific activities to improve
understanding of climate change among policy-makers. Examples include participation in climate-
change negotiations, engagement in efforts to reform land-use planning to proactively anticipate sea-
level rise, or promotion of building codes that improve disaster resilience or energy efficiency.
Leading by example: In-house carbon management: defined by specific activities to reduce the carbon
footprint of insurers’ internal operations (buildings, business travel, computing, and supply chains). For
inclusion, a threshold level of activity is required, beyond highly routine activities such as “using
energy-efficient light bulbs.”
Disclosing climate risks: defined by responding to climate-risk disclosure requests from the CDP, F&C, or
the U.S. Securities and Exchange Commission (SEC).
Fig S2.
Tokio Marine & Nichido, Japan’s largest insurer, embarked on a mangrove reforestation
project in 1999. The project scale is approaching its target of just over 8,200 ha (20,265
acres) across seven countries. The company cites carbon sequestration (contributing to its
own carbon neutrality since 2008) and enhanced resilience to storm damages as joint
mitigation-adaptation benefits of the project (table S4, row 1).
Mangrove Reforestation by Tokio Marine & Nichido Insurance Company
Fig. S3.
Institutional investors participating in the Carbon Disclosure Project (CDP) seek to
manage financial risks when climate change exposures among the companies in which
they invest are insufficiently disclosed or when lack of care threatens financial or
reputational losses to the company. Claims can trigger Directors and Officers insurance
policies or other classes of liability insurance (15). As of 2011, the CDP represented 655
institutional investor members with $78 trillion in assets. A total of 93 insurers responded
to the CDP over the past decade. Response rates for U.S. firms once lagged far behind
those from other countries, but have recently surpassed non-U.S. response rates at around
70%. See table S8 for company-specific details. Separate from the CDP, insurance
regulators crafted a national disclosure process tailored for U.S. companies, which
subsequently became mandatory in California, New York, Pennsylvania, and
Fig. S4.
Insurer funding of climate change mitigation includes large direct investments in
emissions-reduction technologies, businesses, and securities as well as financing for
specific projects. The figure aggregates 32 investments by 22 companies for which data
are publicly available (inflation-corrected to 2011 values). Twenty-two additional
investments are known, but the amounts are not published. See table S9 for company-by-
company details. Amounts reflect initial investments and do not include change in value
over time. Although tabulated in the database, this figure does not include $5 billion
invested in diversified “socially-responsible” funds that have an broad environmental
component rather than a climate change specialization, disinvestment in companies that
exacerbate the climate change problem, or investment in reducing insurers’ own carbon
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Fig. S5.
Insurers engaged in climate-change activities tend to also focus on reducing or offsetting
their own emissions as a form of leadership-by-example. As shown in the figure, 26
companies have pursued this to the point of carbon neutrality. Details and timelines are
listed in table S10, along with indications (where available) of how the reductions were
attained, particularly the degree to which this was accomplished with in-house energy
management versus the acquisition of carbon offsets in the marketplace.
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Table S1. Public commitment to comprehensive, enterprise-wide response to climate risk
Table S2. Insurer climate change science and loss data analysis activities
Table S3. Insurer climate change adaptation projects
Table S4. Insurer recognition of emissions-reduction and loss-prevention cobenefits
Table S5. Illustrative climate change–related insurance products, services, and policy
Table S6. Climate engineering: strategies, effectiveness, cost, risks, cobenefits
Table S7. Climate engineering: comparative hazards and vulnerabilities
Table S8. Insurer responses to the CDP surveys: 2003–2011
Table S9. Selected insurer investments in climate change mitigation (cumulative)
Table S10. Carbon-neutral insurers
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References and Notes
1. Munich Reinsurance Co, Flood Inundation (Munich Reinsurance Co., Munich, 1973).
2. J. Leggett, Eur. Environ. 3, 3 (1993).
3. E. Mills, J. Soc. Insur. Res. 1996, 15 (Fall 1996).
4. E. Mills, Science 309, 1040 (2005).
5. Lloyd’s, Climate Change: Adapt or Bust (360 Risk Project, Lloyd’s, London, 2006).
6. Swiss Reinsurance Co, World Insurance in 2011 (Sigma 2, Swiss Re, Zurich, 2012).
7. W. Kron, M. Steuer, P. Löw, A. Wirtz, Nat. Hazards Earth Sys. Sci. 12, 535 (2012).
9. E. Mills, Geneva Papers Risk Insur. Iss. 34, 323 (2009).
10. S. Schmidt, C. Kemfert, P. Höppe, Environ. Impact. Assess. 29, 359 (2009).
11. Swiss Reinsurance Co, A hidden risk of climate change: More property damage from soil subsidence in
Europe (Swiss Re, Zurich, 2011).
12. J. E. Bordoff, P. J. Noel, Pay-as-You-Drive Auto Insurance (Brookings Institution, Washington, DC,
13. L. Patton, Eur. Bus. Rev. 2008, 3005 (2008).
14. E. Mills, Bull. At. Sci. 68, 67 (2012).
15. Lloyd’s, Directors in the Dock (Lloyd’s, London, 2008).
16. ClimateWise, The ClimateWise Principles: The Fourth Independent Review (PricewaterhouseCoopers,
London, and University of Cambridge, London, 2011).
17. S. M. Tran, J. Sci. Technol. Law 14, 73 (2008).
18. L. R. Phelan, R. Taplin, A. Henderson-Sellers, G. Albrecht, Environ. Policy Gov. 21, 112 (2011).
19. E. Michel-Kerjan, H. Kunreuther, Science 333, 408 (2011).
... They have also become more selective in their risk appetite: for example, by excluding climate liability coverage. The curtailing of risk transfer opportunities can send strong signals to companies to change their behavior [36,37]. Engagement in CSR has also been proven to improve insurers' stability. ...
Full-text available
Climate change is a significant threat, and insurance can provide a significant impulse to provide systemic responses. While several normative frameworks for sustainable business models have been developed, it is still unclear what customers expect and how companies should actually act in their specific business environments. We investigated customer expectations in the context of Swiss retail insurance and found that less than a fifth of customers consider sustainability a very important factor in their next purchase decision, and that core customers in the 35–54 age range are comparatively less concerned about sustainability in general. Customers place most value on social rather than environmental issues. Insurers should improve their efforts in the core business, especially regarding sustainable claims handling, rather than regarding investment management or their own footprint. On the other hand, more than 40% of customers do not feel they know enough to have an opinion about their insurer’s efforts toward sustainability, and there were no significant differences in customer perceptions among the different insurers. These results should have profound implications for communication, business model development, and business transformation efforts for insurers. They also provide important missing detail about customer expectations regarding sustainability in the academic literature.
... Specifically, Buchner et al. (2021) find that in 2021, the majority of the green finance (61%) was raised as green debt (loans and bonds), 33% was equity investment and 6% was government and institutional grants. Other common green financial instruments include green derivatives (Little, Hobday, Parslow, Davies, & Grafton, 2015), green insurance (Mills, 2012), carbon tax (O'Mahony, 2022) and carbon investing and pricing instruments (Hafner, Jones, Anger-Kraavi, & Pohl, 2020). ...
Purpose In this study, the authors provide a systematic literature review of articles in the emerging areas of green finance and discuss the status and challenges in sustainability disclosure, which is crucial for the efficiency of green financial instruments. The authors then review the literature on the economic implications of green finance and outline future research directions. Design/methodology/approach The authors use the analytical framework – Search, Appraisal, Synthesis, and Analysis (SALSA) to conduct the systematic review of the literature. Findings Increasing public attention to the environment motivates the use of green finance to fund environmentally sustainable projects, and the rise of green finance intensifies the demand for environmental disclosure. Literature has documented tremendous growth in sustainability reporting over time and around the globe, as well as raised concerns about how such reporting lack consistency, comparability, and assurance. Despite these challenges, the authors find that in general, the literature agrees that a firm’s green practice is positively associated with its financial performance and negatively related to a firm’s cost of capital. Green finance is also found to bring about enhanced risk management and economic development. Originality/value The authors provide one of the first reviews of green finance, sustainability disclosure and the impact of green finance on financial performance, capital market and economic development.
... Nilwala and Jayarathna [28] argued that agricultural insurance can encourage the use of organic methods of farming, which can reduce the effects of global warming. Compared with other kinds of insurance products, agricultural insurance would influence CO 2 emissions differently since it falls under the category of green insurance, which is designed to promote green development [29][30][31]. Ahmed et al. [32] denoted that agricultural insurance not only motivates farmers to be more accepting of the use of environmentally friendly production technology but also encourages farmers to reduce the use of chemicals that potentially pollute the environment. ...
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Global greenhouse gas emissions are increasing, with carbon dioxide being the most prominent. It is urgent to address and resolve the carbon emissions problem. This study investigates the mediating mechanism of agricultural insurance and low-carbon technology innovation on agricultural carbon emissions. We employed a two-way fixed effect panel model with data from 30 provinces in China from 2001–2019 to validate our hypotheses. The results demonstrate that (1) agricultural insurance can play an effective role in reducing agricultural carbon emissions, and (2) an indirect effect of agricultural insurance development on agricultural carbon emissions through low-carbon technology innovation exists. These results indicate that agricultural insurance could suppress agricultural carbon emissions indirectly through low-carbon technology innovation, thus preventing the acceleration of the greenhouse effect. This study further analyzed regional differences and discovered that the suppression effect of agricultural insurance on agricultural carbon emissions is more significant in the eastern regions and non-main grain-producing areas of China. Therefore, the analysis implies that promoting the development of agricultural insurance to encourage low-carbon technology innovation is crucial to accelerate the process of “carbon peak and neutrality”, especially for the eastern regions and non-main grain-producing areas of China.
... In relation to its function as an intermediary, lender, money manager, or risk evaluator, the financial services industry has a strategic role in influencing behaviors of other economic sectors, including imposing sustainability principles (Helleiner, 2011;Scholtens, 2011;Dziawgo, 2014;Dixon, 2019;Chiaramonte et al., 2020;Dong et al., 2021). Having acknowledged this strategic role and the fact that its activities still generated high volume of indirect emissions, the insurance sector as part of the financial services industry is actively supporting the implementation process of the sustainable finance 126 © 2023, Program Studi Ilmu Lingkungan Sekolah Pascasarjana UNDIP (Junnila, 2006;Mills, 2012;Shrake, 2012;Johannsdottir, 2014;Jones & Phillips, 2016). ...
Regulation of the Financial Services Authority of Indonesia (POJK) Number 51/POJK.03/2017 concerning the Implementation of Sustainable Finance for Financial Services Institutions, Issuers, and Public Companies was officially enacted for the insurance sector as of 1 January 2020 and requires the insurance sector, including the general insurance sector, to carry out the implementation of sustainable finance into its business activities. This study intends to review the extent of the implementation that has been carried out, particularly in relation to the social and environmental risk management principles. Using a literature review, data specifically related to the underwriting process were gathered and analyzed. Results of this study suggested that even though 86% of 44 respondents from the previous research had already confirmed if principles of social and environmental risk management had been implemented at that time, vast majority of the non-life insurers in Indonesia had not yet executed the said integration into the underwriting process. The sustainable finance implemented by Indonesia's non-life insurance sector is still significantly focused on short-term financial performance rather than the long-term one. ABSTRAK Peraturan Otoritas Jasa Keuangan (POJK) Nomor 51/POJK.03/2017 tentang Penerapan Keuangan Berkelanjutan Bagi Lembaga Jasa Keuangan, Emiten, dan Perusahaan Publik resmi diberlakukan bagi sektor perasuransian per tanggal 1 Januari 2020. Pemberlakuan POJK tersebut mewajibkan sektor perasuransian, termasuk sektor perasuransian umum, untuk merealisasikan penerapan keuangan berkelanjutan dalam kegiatan usahanya. Oleh karena itu, studi ini bermaksud untuk melakukan tinjauan terhadap kinerja keuangan berkelanjutan yang dilaksanakan oleh sektor perasuransian umum sehubungan dengan prinsip pengelolaan risiko sosial dan lingkungan hidup. Metode tinjauan literatur pada studi ini dilakukan dengan pengumpulan data sekunder dan analisis kinerja keuangan berkelanjutan yang secara spesifik berkaitan dengan proses underwriting. Adapun dari hasil ulasan dapat disimpulkan bahwa walaupun 86% perwakilan perusahaan asuransi umum yang merupakan responden pada penelitian tahun 2018 menyatakan telah melakukan penerapan prinsip pengelolaan risiko sosial dan lingkungan hidup, namun proses integrasi aspek tanggung jawab sosial serta perlindungan dan pengelolaan lingkungan belum mencakup sampai kepada tahapan proses underwriting. Penerapan keuangan berkelanjutan dari sektor perasuransian umum di Indonesia masih berfokus pada kinerja keuangan jangka pendek. Kata kunci: pengelolaan risiko sosial dan lingkungan, keuangan berkelanjutan, asuransi umum, tanggung jawab sosial, proses underwriting.
... On the other hand, further studies on the risk management mechanisms of green securities and green insurance are required due to market uncertainties which deters firms' innovation (Wang et al., 2017). For instance, while green securities support green industry projects to augment resource allocation in the capital market and the real economy (Shanghai Stock Exchange, 2021), green insurance diversifies and transfers environmental risks and encourages emission-reducing innovation (Mills, 2012). While green insurance cannot improve expected profits (Wang et al., 2017), the risk reduction ability plays an important role in influencing corporate overseas investments . ...
Green finance (GF) supports the global fight against climate change and its impacts. It is critical to attaining the Paris Agreement and the United Nations Sustainable Development Goals. Since GF is regarded as the future of finance and investment, it needs to be fully understood. This paper presents the first mixed-methods systematic review with both bibliometric and qualitative analysis of the state-of-the-art and trends in GF research. A bibliometric review was performed to quantitatively examine the main areas of interest, journals, and clusters of GF research based on 995 related publications retrieved from Scopus and validated with the Web of Science, Google Scholar, and ScienceDirect. Results showed that GF is still relatively an immature but interdisciplinary research area. A further qualitative-systematic analysis of 60 selected publications was conducted to identify the key findings, challenges, and recommendations for future research. Findings revealed six major research hotspots in GF: (i) green bond market and greenium, (ii) green credit (loan), (iii) carbon investment and market, (iv) green banking, (v) market stress (e.g., the COVID-19 pandemic) and GF, and (vi) domestic and international climate finance policies. Based upon gaps in extant literature, suggestions for future research are proposed: GF policy initiatives and incentives; GF in green building; and Fintech-for-GF. This study provides insights into key applications of GF as it applies to specific research fields, as well as the pathways to realize the accruable benefits of GF to enhance research and development.
... Brockett and Xiaohua (1997) review the applications of operations research methods in the insurance industry. Mills (2005Mills ( , 2012 look at the role insurance firms need to play in managing climate change risk. Michel-Kerjan andKunreuther (2011), Michaels et al. (1997). ...
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Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from derivatives theory to price such contracts. Numerical simulations are used to demonstrate the practical applicability of these models. The techniques advanced here can lead to greater synergies between the management of derivative and delta-one trading desks, perhaps even being able to combine certain aspects of the day to day operations of these seemingly disparate entities. These models are part of one of the least explored, yet profit laden, areas of modern management. A heuristic is developed to mitigate any loss of information, which might set in when parameters are estimated first and then the valuations are performed, by directly calculating valuations using the historical time series. This approach to valuations can lead to reduced models errors, robust estimation systems, greater financial stability and economic strength. An illustration is provided regarding how the methodologies developed here could be useful for inventory management, emissions trading and insurance risk mitigation. All these techniques could have applications for dealing with other financial instruments, non-financial commodities and many forms of uncertainty.
... These results match the studies of Ping et al. (2014), which check the green financial development in the emerging economies and conclude that renewable energy projects are being financially supported by insurers who intend to maintain environmental protection. The results also match with the literary works of Mills (2012), which try to elaborate the contribution of green investment in finance to make possible the establishment of renewable energy enterprises and the improvement in its environmental performance. Furthermore, the results have indicated that green investment is one of the methods of green financial development which, even in the period of Covid-19, encourages investment in the renewable energy projects as the purpose of green investment is to put money in the projects whose basic objective is to protect the natural environment. ...
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Environmental protection has become a significant issue around the globe. The extensive use of renewable energy and green finance is considered as the solution to this dramatic issue, especially in the Covid-19 lockdown. To answer this demand, the present study examines the impact of green financial development such as green credit, green investment, and green securities along with corporate social responsibility (CSR) in reporting renewable energy investment based on evidence from an emerging economy. Economic growth was used as the control variable of the study. The data was gathered from the central bank and World Development Indicators (WDI) from 1976 to 2020. The error correction model (ECM) was used to test the nexus among the variables. The findings revealed that green credit, green investment, and green securities along with CSR reporting and economic growth have a significant positive nexus with renewable energy investment in the selected emerging economy. These outcomes are helpful for new arrivals to investigate this area in the future along with regulators who want to formulate policies related to green finance and renewable energy usage and investment in the context of emerging and developing countries.
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Sustainability is now a priority issue that governments, businesses and society in general must address in the short term. In their role as major global institutional investors and risk managers, insurance companies and pension funds are strategic players in building socio-economic and sustainable development. To gain a comprehensive understanding of the current state of action and research on environmental, social and governance (ESG) factors in the insurance and pension sectors, we conduct a systematic literature review. We rely on the PRISMA protocol and analyze 1 731 academic publications available in the Web of Science database up to the year 2022 and refer to 23 studies outside of scientific research retrieved from the websites of key international and European organizations. To study the corpus of literature, we introduce a classification framework along the insurance value chain including external stakeholders. The main findings reveal that risk, underwriting and investment management are the most researched areas among the nine categories considered in our framework, while claims management and sales tend to be neglected. Regarding ESG factors, climate change, as part of the environmental factor, has received the most attention in the literature. After reviewing the literature, we summarize the main sustainability issues and potential related actions. Given the current nature of the sustainability challenges for the insurance sector, this literature review is relevant to academics and practitioners alike.
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Global reinsurer Munich Re has been collecting data on losses from natural disasters for almost four decades. Together with EM-Dat and sigma, Munich Re's NatCatSERVICE database is currently one of three global databases of its kind, with its more than 30 000 datasets. Although the database was originally designed for reinsurance business purposes, it contains a host of additional information on catastrophic events. Data collection poses difficulties such as not knowing the exact extent of human and material losses, biased reporting by interest groups, including governments, changes over time due to new findings, etc. Loss quantities are often not separable into different causes, e.g., windstorm and flood losses during a hurricane, or windstorm, hail and flooding during a severe storm event. These difficulties should be kept in mind when database figures are analysed statistically, and the results have to be treated with due regard for the characteristics of the underlying data. Comparing events at different locations and on different dates can only be done using normalised data. For most analyses, and in particular trend analyses, socio-economic changes such as inflation or growth in population and values must be considered. Problems encountered when analysing trends are discussed using the example of floods and flood losses.
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Most experts agree that the greatest risk associated with climate change is pretending that the problem does not exist, or that it does not require immediate attention and action. That said, the potential pathways for mitigating the effects of greenhouse gas emissions are not created equal in terms of the risks and benefits they entail. Public discourse tends to focus on the most optimistic scenarios for implementing new technologies and to ignore not only the hazards but also the non-climate-related benefits associated with some approaches. Climate mitigation strategies currently undergo economic and engineering analyses, but they are not consistently subjected to rigorous risk assessment and risk management. The author offers the beginnings of a more cohesive decision-support analysis framework. Assessments of various mitigation strategies by the world’s largest industry—insurance—are critically important in this process because insurers can provide a dispassionate view and internalize the costs of risk through pricing. Bank financing cannot be mobilized without insurance, and the public sector may be forced to assume many of the risks associated with emerging technologies if insurers opt out. A century of dangerously blending technological enthusiasm with lack of care in assessing the comparative risks of energy and land-use choices ushered in today’s climate crisis. Continued inattention threatens to saddle society with new risks from poorly prioritized efforts to solve the climate problem. Procrastination is painting humankind into a corner in which progressively riskier and unproven technologies will be required to mitigate climate change.
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A vanguard of insurers is adapting its business model to the realities of climate change. In many ways, insurers are still catching up both to mainstream science and to their customers, which, in response to climate change and energy volatility, are increasingly changing the way they construct buildings, transport people and goods, design products and produce energy. Customers, as well as regulators and shareholders, are eager to see insurers provide more products and services that respond to the ‘‘greening’ ’ of the global economy, expand their efforts to improve disaster resilience and otherwise be proactive about the climate change threat. Insurers are increasingly recognising the issue as one of ‘‘enterprise risk management’ ’ (ERM), one cutting across the domains of underwriting, asset management and corporate governance. Their responses are becoming correspondingly sophisticated. Based on a review of more than 300 source documents, plus a direct survey of insurance companies, we have identified 643 specific activities from 244 insurance entities from 29 countries, representing a 50 per cent year-over-year increase in activity. These entities collectively represent $1.2 trillion in annual premiums and $13 trillion in assets, while employing 2.2 million people. In addition to activities on the part of 189 insurers, eight
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Catastrophe insurance provides peace of mind and financial security. Climate change can have adverse impacts on insurance affordability and availability, potentially slowing the growth of the industry and shifting more of the burden to governments and individuals. Most forms of insurance are vulnerable, including property, liability, health, and life. It is incumbent on insurers, their regulators, and the policy community to develop a better grasp of the physical and business risks. Insurers are well positioned to participate in public-private initiatives to monitor loss trends, improve catastrophe modeling, address the causes of climate change, and prepare for and adapt to the impacts.
While the debate continues regarding the effects of global warming, consensus has been reached that the causes of climate change are in place. As policy makers talk about possible responses, the insurance industry has been hit by a succession of significant catastrophes from storms and floods. Jeremy Leggett outlines current thought on global warming, and suggests that the insurance industry could create a framework to limit both global warming and the losses that it faces as a result of climate change.
Climate change is a phenomenon of the Earth system, which is characterized by thresholds and non-linear change. This analysis considers the adequacy of insurance (in its broadest sense) responses to climate risk. This paper provides novel critiques of insurance system responses to climate change and of the attendant political economy perspective on the relationship between insurance and climate change. A complex adaptive systems (CAS) analysis suggests that ecologically effective (i.e. strong) mitigation is the only viable approach to manage medium- and long-term climate risk – for the insurance system itself and for human societies more widely. In contrast, we find that even the most substantial insurance system responses to date are generally adaptive and weakly mitigative. This analysis extends an earlier political economy perspective that explains the limitations of insurance system responses to climate change, but provides little guidance to the ecological implications of such responses. As such, this paper raises questions about the ongoing viability of the insurance system, and hence about the many aspects of human societies globally reliant on the insurance system as their primary risk governance tool. We conclude that the CAS approach provides new insights, which could prompt insurance system evolution in support of effective climate risk governance. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.
Economic losses caused by tropical cyclones have increased dramatically. Historical changes in losses are a result of meteorological factors (changes in the incidence of severe cyclones, whether due to natural climate variability or as a result of human activity) and socio-economic factors (increased prosperity and a greater tendency for people to settle in exposed areas). This paper aims to isolate the socio-economic effects and ascertain the potential impact of climate change on this trend. Storm losses for the period 1950–2005 have been adjusted to the value of capital stock in 2005 so that any remaining trend cannot be ascribed to socio-economic developments. For this, we introduce a new approach to adjusting losses based on the change in capital stock at risk. Storm losses are mainly determined by the intensity of the storm and the material assets, such as property and infrastructure, located in the region affected. We therefore adjust the losses to exclude increases in the capital stock of the affected region. No trend is found for the period 1950–2005 as a whole. In the period 1971–2005, since the beginning of a trend towards increased intense cyclone activity, losses excluding socio-economic effects show an annual increase of 4% per annum. This increase must therefore be at least due to the impact of natural climate variability but, more likely than not, also due to anthropogenic forcings.
Insurance and government assistance play central roles in ensuring economic and social resilience in the aftermath of catastrophes in developed countries. Around the globe in the past decade, disasters have led to unprecedented claims payments to insured victims, and government relief to aid the uninsured and the affected communities has risen to historic levels (1–3). Increases in population, property values, and concentration of assets in hazard-prone areas are primary causes (2). Recent climate studies indicate we should also expect more extreme weather-related events in the future (4–6). The cumulative expected exposure of the U.S. government to catastrophes over the next 75 years could reach $7 trillion (7).
Flood Inundation (Munich Reinsurance Co
  • Munich Reinsurance Co
Munich Reinsurance Co., Flood Inundation (Munich Reinsurance Co., Munich, 1973).
  • J Leggett
J. Leggett, Eur. Environ. 3, 3 (1993).