Why climate change is a matter of policy for insurers
<p>Chrissy Coughlin talks with Mark Way, Head Sustainability Americas Hub at Swiss Re.</p>
This week on Nature of Business, I spoke with Mark Way, Head Sustainability Americas Hub at Swiss Re, a global reinsurance company that has been around for nearly 150 years. Perhaps not a household name for some of us, Swiss Re insures insurance companies, large corporations and more recently governments and non governmental organizations. It pays for major losses such as those that have occurred with Katrina, the World Trade Center, and now Superstorm Sandy. We spoke about Way’s work, including some really interesting projects and collaborations, all in the context of risk reduction, adaptation and mitigation, and climate change.
Way’s focus as sustainability head has a heavy focus on the climate topic and converses regularly with all stakeholders who want to engage in dialogue on sustainability matters. He also works internally with Swiss Re's efforts to address their carbon footprint. (In 2007 Swiss Re became carbon neutral — pretty impressive).
So how is Swiss Re approaching the issue of climate?
As Way describes, "Everything is guided by strategy to try to take a comprehensive approach. We do a lot of research on the economic impacts of severe weather and how this might change through climate change. We look at how we can position the products we have to consider climate issues. A lot of the basic products that we provide are very relevant to conversation — insurance policies against wind storms are nothing new but [we determine] how can you take this and look and see what the kind of risks going forward would be and what would then be the appropriate approach and product."
Climate change is certainly a complex topic that must be tackled in a sophisticated way. As Way describes, it isn't sufficient to simply mitigate. There must be a holistic approach in place that includes adaptation. One way to think about it is if we stopped man made greenhouse gas emissions today it would be several decades to see results. Swiss Re feels that we have to prepare society adapt them to make them more resilient. And everything that Swiss Re is seeing as a company is that we need to tackle climate change.
It was particularly timely to speak with Way in the wake of Hurricane Sandy. As Way makes clear, Sandy is a clear reminder of what severe weather can do and serves as a wake up call that severe weather is something that is not going to go away — climate change or not.
One interesting project that Way highlighted is in collaboration with NGO partners CERES, Climate Wise, and Canadian companies Aviva and Cooperators to create an insurance industry platform to discuss climate related issues and resiliency in the urban context. (Way feels that U.S. insurers will be joining soon). The goal, as Way describes, is to put all of the thought into designing a methodology and for that methodology to become a blueprint to help cites within United States and beyond to think through the ways and means of addressing the vulnerability which we currently have.
Then there is the developing world, which is a entirely different story when it comes to resiliency. A project that Way discussed and one based on financial inclusion is aiming to change that and serve as a model for the developing world. The project, which started in 2008 in one village in Ethiopia in partnership with Oxfam America, Columbia University, and the Rockefeller Foundation, encourages the village population to work on projects which would improve the resilience of that village to the kinds of weather events that they might experience quite regularly. In the case of Ethiopia this would be drought. The villages implement projects such as installation of irrigation systems, planting of nitrogen fixing trees, and improvement of storage facilities for crops they have grown. In return for this they get an insurance policy. In 2008 there were zero insurance policies. In 2011 the project has expanded to 45 villages and 13,000 policies (80,000 people). Progress.
And good news. The World Food Program has now expressed interest in the project and through their work it is being scaled up from one country to three new countries and U.S. AID to expand access to this kind of project. The next country is Senegal.
The reinsurance world is a fascinating one. Reinsurers essentially take the guesswork out of determining the potential costs and benefits of taking measures that need to be taken in light of major disasters and aim to help us all be better prepared, so we are all more resilient in both the developed and developing world.