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Climate Change

A Scorecard on Climate Resiliency

A new report helps insurers -- and regulators -- benchmark progress on climate change preparedness.
By: | January 9, 2017 • 4 min read

Since 2010, the National Association of Insurance Commissioners (NAIC) has administered a Climate Risk Disclosure Survey, an eight-item questionnaire that assesses insurers’ approach to and preparedness for climate change.

As weather-related losses continue a steady climb across the globe, some insurers have taken steps to ensure they and their clients are prepared for the risks.

In addition, regulators have an interest in insurers’ climate change resiliency as well, to ensure the marketplace remains stable and comprehensive products are available to companies at affordable prices.

Since 2014, regulators in a handful of states have required that carriers writing more than $100 million in premium take the climate risk survey.

The NAIC survey provides regulators with insight into insurers’ strategies, and helps insurance companies to benchmark their efforts against both themselves and their competitors.

“The top core theme we give the most weight to in our analysis is climate risk governance; are senior managers and corporate directors engaged on the issue? Are they being regularly briefed?” — Max Messervy, co-author, Ceres Insurer Climate Risk Disclosure Survey Report

Ceres in turn evaluates those responses to identify trends and track improvement over time, a practice it began in 2011.

“We systematically look at these responses and see from an industry-wide perspective who is doing what,” said Max Messervy, a co-author of Ceres’ most recent report, “Insurer Climate Risk Disclosure Survey Report & Scorecard: 2016 Findings and Recommendations.”

The survey questions cover areas ranging from investment decisions, risk mitigation efforts, financial solvency, emissions and carbon footprint, and how insurers engage consumers on the issue.

“The top core theme we give the most weight to in our analysis is climate risk governance; are senior managers and corporate directors engaged on the issue? Are they being regularly briefed?” Messervy said.

According to the Ceres report, 25 percent of property/casualty insurers earned a “high quality” rating, meaning they regularly involve their boards of directors in discussions of climate change and sustainability goals.

Diane Cantello, vice president, corporate sustainability, The Hartford

Diane Cantello, vice president, corporate sustainability, The Hartford

“Through numerous studies and our work, it’s been shown to be a good practice to have senior management leadership from the CEO level on down regularly engaging in these issues as they emerge and evaluating economic impact,” Messervy said.

The Hartford, one “high quality” insurer on climate change, created an environment committee to oversee the company’s sustainability strategy.

This committee briefs the board of directors once per year and the executive leadership team – a group of 18 senior managers – twice per year.

The Hartford’s CEO has also participated in White House roundtables on climate resilience.

“The Hartford is recognized regularly for our commitment to corporate sustainability,” said Diane Cantello, vice president of corporate sustainability. “Between 2007 and last year, the company’s energy-related greenhouse gases were reduced by 57 percent.”

Keeping Informed

Another trait shared by “high quality” insurers — those who received at least 75 points from Ceres on a 100-point scale — is their collaboration with the scientific community.

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It all starts with knowledge. Getting the most up-to-date information on climate change both from leading scientists and through internal research is key to understanding the exposure an insurer faces and providing guidance to clients.

Swiss Re, for example, has established itself as a front-runner in conducting climate change research and working with governments and international bodies to facilitate the discussion.

“We’ve provided studies to governments across the globe, helping them to understand the future impact of climate change and develop an adaptation strategy, which includes insurance components.” — Andreas Spiegel, head group sustainability risk, Swiss Re.

“We have developed methodologies to assess and quantify climate risk for certain regions or certain clients; we’ve provided studies to governments across the globe, helping them to understand the future impact of climate change and develop an adaptation strategy, which includes insurance components,” said Andreas Spiegel, head group sustainability risk, Swiss Re.

FM Global, another high-scoring carrier, depends on its in-house engineering staff to evaluate the environmental impact of a variety of risks.

“We have to make sure we give our insureds sound guidance on how they can meet sustainability goals, which means advising them on how their risks can make them less sustainable, but also how their sustainability efforts present new risks in themselves,” said Lou Gritzo, vice president and manager of research, FM Global.

Take a somewhat standard property risk like fire. Gritzo said it is the insurer’s job to advise a client of the environmental impact of a potential fire, including air emissions, runoff from fire hosed, the disposal of burned material, and the effects of rebuilding any damaged structures.

Likewise, if a client decides to go green by installing rooftop solar panels, they should understand the risks that accompany the new equipment.

For its part, The Hartford developed insurance products to help customers reduce greenhouse gas emissions in 2009, and has more recently offered premium discounts to those who opt for electric or hybrid vehicles.

Gritzo said a key challenge for all insurers going forward will be keeping up with advancing climate change science and relaying that information in easily digestible ways to their clients.

New Business Potential

Adapting to climate change also means taking advantage of new business opportunities in renewable energy. Investment portfolios can provide insight into where those opportunities lie, and should therefore get a regular once-over from company leaders.

Fossil fuel producers, for example, counteract sustainability goals and will see performance decline as renewable energy producers move into the energy market and regulations to curb carbon dioxide emissions reduce demand for fossil fuels.

“We’re undergoing a massive energy transition currently, based on the Paris climate agreement signed in December 2015, and basically the economics of renewable energy are becoming increasingly favorable over fossil fuel-based energy,” Messervy said.

“There is a need to understand both the risk and the business opportunity in renewable energy. It’s a core interest for the insurance sector, especially reinsurance because macro risks are where we specialize,” Spiegel said.

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Masters of Risk

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]