AIG Earns Kudos for New Climate Policy

AIG Earns Kudos for New Climate Policy

Insurance giant AIG has become the first U.S.-based insurance company to adopt a policy to manage the risks and capture the business opportunities posed by climate change.

The move has earned praise from Ceres, a national coalition of investors and environmental groups. Ceres has been seeking improved U.S. insurance industry practices on climate change through the Investor Network on Climate Risk, a group of 50 institutional investors that manage nearly $3 trillion in assets.

"I commend AIG for being the first U.S. insurance company to address climate risk," says Ceres President Mindy Lubber. "This is an important step that signals to the market and policy makers that climate change is a critical insurance issue. We look forward to working with AIG to expand on this commitment."

AIG's new policy states that the company is "actively seeking to incorporate environmental and climate change considerations across its businesses, focusing on the development of products and services to help AIG and its clients respond to the worldwide drive to cut greenhouse gas emissions." The new initiative, "AIG's Policy and Programs on Environment and Climate Change" (PDF) can be downloaded from AIG's Web site.

AIG's initiative comes at a time when U.S. insurers are seeing record increases in insured losses from extreme weather events. A 2005 Ceres study, Availability and Affordability of Insurance Under Climate Change: A Growing Challenge for the U.S., found a 15-fold increase in insured losses from catastrophic weather events in the past three decades.

Investors have been asking for insurance companies to improve their corporate governance and disclosure on climate risk. In December 2005, 20 leading U.S. investors, with combined assets of more than $800 billion, sent a letter to 30 of the largest publicly-held insurance companies in North America urging them to disclose their financial exposure from climate change and steps they are taking to reduce those financial impacts. In another sign of growing investor concern, Connecticut State Treasurer Denise Nappier co-hosted an insurance industry and climate change summit in Hartford in October 2005.

Regulators and brokers are also increasingly concerned about climate risk. The National Association of Insurance Commissioners announced a new task force designed to examine the impacts of climate change and possible measures that insurers and regulators can take to reduce risk. Marsh, the largest insurance broker in the U.S., released a risk alert in April, "Climate Change: Business Risks and Solutions," that examines the complex global issue from a risk management perspective.

"Insurance as we know it is threatened by a perfect storm of rising losses, rising temperatures and more Americans than ever living in harm's way. In light of the regulatory and physical risks posed by climate change, AIG's new policy is a major step forward for the insurance industry," concludes Lubber.