Property and casualty insurance companies are increasingly affected by climate change as property-related risks rise due to extreme weather related events and natural catastrophes. Most scientists agree that climate change contributes to an increased occurrence of extreme weather related events and natural catastrophes (e.g., floods, droughts, heat waves and hurricanes). According to Swiss Reinsurance Company (Swiss Re), a large reinsurance company based in Zurich, Switzerland, 189 natural catastrophes were recorded in 2014 alone and that amounted to $28 billion in insured losses ($68 billion in total losses). [1] Rising sea levels and more extreme weather events means that losses are likely on the rise. Specifically, in its July 2014 report, Corelogic identified more than \u201c6.5 million U.S. homes at risk of storm surge damage, with a total reconstruction value of nearly $1.5 trillion.\u201d [2] Managing the risks of climate change (and sufficiently dealing with the resulting insured losses) is intrinsically important to the insurance industry; failure to recognize the threat and manage the amount of capital available to pay out potential losses can be debilitating to insurance companies.<\/p>\n
ACE is one of the largest global property and insurance companies to tackle climate change. It has been a leader in developing products and risk management services to address climate change. ACE\u2019s climate change strategy is two-fold: 1) effectively manage the risks from increased weather events and 2) offer innovative products that encourage customers to reduce greenhouse gas (GHG) emissions.<\/p>\n
ACE is developing innovative financial modeling products in order to effectively underwrite and manage its exposure to climate change risks. ACE is a leading user of catastrophe models to measure extreme weather related risks for product pricing, risk management, capital allocation and to estimate losses from hurricanes. [1] It uses models to monitor its exposure to natural catastrophes and guarantee that its capital reserves meet requirements of regulators, rating agencies and policyholders. As a result of the increased frequency of extreme weather related events, ACE does not use historical data in their catastrophe models to predict risk; instead they use a \u201cshorter-term view of event frequency that is higher than the long-term historical frequency.\u201d [1] Another tool that ACE began developing in 2015 following the disastrous aftermath of Hurricane Sandy is a flood risk management model to give underwriters and risk managers a more accurate model to assess flood risks.\u00a0 [3]<\/p>\n
Besides effectively underwriting and managing exposures to climate change risks, ACE understands the opportunities insurers have to offer market-based solutions that assist its customers in shifting to renewable energy and reducing their GHG emissions. ACE offers two new products: Global Premises Pollution Liability (PPL) and Contractors\u2019 Pollution Liability (CPL) policies. These two products provide both insurance and technical support to US multinational companies with the objective of reducing their environmental exposure. ACE also offers a Green Property Insurance policy that covers commercial businesses who choose to adopt \u201cgreen\u201d standards to rebuild if there is damage or loss to an existing building. \u201cGreen\u201d standards include: energy-efficient appliances, electronics, heating and cooling systems, interior plumbing systems and lighting fixtures, etc. Another product is ACE Environmental Risk\u2019s ACE ALERT program that in the event of natural catastrophes, dispatches \u201cincident-response contractors and real-time monitoring of clean-up costs.\u201d [1] This program has achieved accolades from the Business Insurance Innovation Awards Program and has proven to both reduce environmental damage and lower claim costs by 20% to 25%. [1]<\/p>\n
Internally, ACE has also launched a corporate environmental program in order to reduce its carbon footprint. Since the program\u2019s launch in 2006, the company reduced GHG emissions approximately 30% per employee by 2012. After reach their goal, ACE announced a new company goal to further reduce emissions 10% per employee from 2012 to 2020. ACE also reports its GHG emissions data and related activities to the CDP. [1]<\/p>\n
ACE is well-positioned to address the environmental risks associated with climate change among its peers in the insurance industry. In fact, in a study conducted by Ceres in 2014, ACE was recognized as a leader among other insurance companies in addressing climate change risks. [2] \u00a0However, ACE can further mitigate its exposure to environmental risks by charging even higher premiums for (or refusing to insure) certain risks (specifically along the US coasts) that will discourage construction there. ACE should also continue to monitor the health of its capital reserves to meet the increasing frequency of natural catastrophes.<\/p>\n
(Word count:726)<\/em><\/p>\n Sources:<\/p>\n [1] Ace Group. 2015.\u00a0ACE Group Environment Report 2015<\/em>. [ONLINE] Available at:\u00a0http:\/\/www.acegroup.com\/assets\/attachments\/ace-group-2015-environmental-report.pdf<\/a><\/u>. [Accessed 2 November 2016].<\/p>\n [2] Ceres. 2014.\u00a0Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings and Recommendations<\/em>. [ONLINE] Available at:\u00a0https:\/\/www.ceres.org\/press\/press-releases\/first-of-its-kind-report-ranks-u.s.-insurance-companies-on-climate-change-responses<\/a><\/u>. [Accessed 2 November 2016]<\/p>\n [3] ACE Group. 2013.\u00a0Innovations in Flood Insurance Protection<\/em>. [ONLINE] Available at:\u00a0http:\/\/www.acegroup.com\/us-en\/assets\/innovations-in-flood-insurance-protection-11.13.pdf<\/a><\/u>. [Accessed 3 November 2016].<\/p>\n Evan Mills. 2015.\u00a0Responding to Climate Change – Insurace Industry Perspective<\/em>. [ONLINE] Available at:\u00a0http:\/\/evanmills.lbl.gov\/pubs\/pdf\/climate-action-insurance.pdf<\/a><\/u>. [Accessed 1 November 2016].<\/p>\n