July 10 (Bloomberg) -- Insurers in the U.S., Germany and Switzerland say a pledge announced yesterday at a meeting of the world’s biggest polluters to limit global temperatures is essential to controlling the cost of protecting property.

Munich Re, the biggest reinsurer, and Zurich Financial Services AG back the target set by the European Union, the U.S. and 15 more nations to hold the planet to within 2 degrees Celsius (3.6 Fahrenheit) of pre-industrial times.

The 17-member group, acting on scientific forecasts that excessive warming may spark more severe weather, set the goal as the centerpiece of their declaration in L’Aquila, Italy, after meetings led by U.S. President Barack Obama. The 2-degree cap, supported by the EU since 1996, has gained acceptance from insurers, one of the first corporate converts.

“The worrisome fact is that we do not know exactly what will happen for instance in a ‘3-degree-world,’” said Eberhard Faust, head of climate risk at Munich Re. “Science hints at strong adverse effects beyond this cap.”

Climate change already has helped push insurance rates higher in flood- and hurricane-prone areas such as Florida, said Patrick Liedtke, secretary general of the Geneva Association, a Swiss group of international insurance company chief executive officers. If left unchecked, global warming may make the cost of some insurance “unbearable,” he said in an interview.

“If the world continues on the current path, it would see an explosion of the current risk,” Liedtke said.

Margin Disappearing

The earth has already warmed by about 0.8 degrees, and will likely rise a further 0.6 degrees from pollution already in the atmosphere, said Brenda Ekwurzel, a climate scientist with the Cambridge, Massachusetts-based Union of Concerned Scientists.

“We have 0.6 degrees left to go,” Ekwurzel said in an interview. “We really have to act as soon as possible in order to avoid crossing that 2 degrees-above-Celsius” threshold.

Higher average temperatures could trigger severe droughts, heat waves and tropical storms that push the cost of coverage beyond the reach of homeowners and businesses, said David Synder, vice president of the Washington-based American Insurance Association.

Snyder, whose group represents 350 U.S. insurers with about $123 billion in annual policy sales, said his members can make profits with high losses or low losses by adjusting premiums. The problem they foresee is “when loses get so high that they’re basically uninsurable, or when people can’t afford to buy coverage.”

2-Degree Pledge

The temperature pledge by the 17-member group of nations, billed as the Major Economies Forum, is significant because they discharge about 80 percent of the world’s greenhouse gases including carbon dioxide that are blamed for climate change.

Several targets for emission reductions were dropped from a draft agreement by the national leaders, leaving the temperature goal as a main achievement. Leaders debated the climate-change solutions five months before a December deadline the United Nations has set to reach agreement on a new treaty to curb manmade pollution from burning fossil fuels and deforestation.

The Group of Eight nations, meeting alongside the Major Economies Forum in Italy, agreed for the first time yesterday to cut their greenhouse-gas emissions 80 percent by 2050 and repeated a call for developing countries to accept a global reduction target of 50 percent by mid-century.

The most-polluting developing nations such as China and India balked at language in a draft declaration that called for a global goal to cut emissions 50 percent by 2050, people familiar with the talks said.

Industrialized Nations Blamed

China and India have long blamed industrialized nations for the bulk of heat-trapping gases such as CO2 and methane that most scientists say are contributing to climate change. Poorer nations have called on the U.S., Japan and Europe to reduce their pollution 40 percent by 2020 and provide more financing to help developing nations reduce emissions.

Lloyd’s of London, the world’s biggest insurance market, tries to take climate-change trends into account when setting capital requirements for near-term risks, said Trevor Maynard, manager in Lloyd’s emerging risks team.

Possible insured losses under “realistic disaster scenarios” from natural causes, which Lloyd’s uses to calculate capital requirements and risk appetite, jumped from $70 billion to $100 billion between 2005 and 2006, “to take into account our new views on potential hurricane severity, amongst other factors.”

‘3-Degree World’

Insurers are offering new financial products that aim to ease the severity of drought, disease and storms by promoting technologies that reduce heat-trapping emissions.

Zurich Financial, Switzerland’s largest insurer, offers liability coverage to companies testing ways to fight climate change by burying greenhouse gases underground, said Lindene Patton, chief climate product officer for the Zurich-based firm.

Capturing carbon dioxide from coal-burning power plants, pumping it underground and storing it there forever may be key to curbing the greenhouse gas linked to global warming. Insurers must calculate the risk that gases will seep from underground caverns, or react with water, potentially affecting another person’s assets, Patton said.

“Climate change is about the physical changes, but also about the way we change the structures of our economy to mitigate and adapt,” Patton said.

Zurich also offers coverage to protect corporate officers against claims of mismanaging the risks of climate change, and for renewable energy projects that produce power from the sun and wind.

Tipping Points

For an added cost, Fireman’s Fund Insurance Co., a unit of Munich-based Allianz SE, offers home and business owners property coverage that lets them upgrade to more energy- efficient appliances and building materials after a loss. The policy option helps raise awareness among customers of the risks of climate change, said Scott Steinmetz, assistant vice president of corporate risk governance.

In a report last week, the Geneva Association described “tipping points” such as the collapse of the Greenland ice sheet, which could lead to a rise in sea level of up to 7 meters (23 feet) over a century. If the Greenland or West Antarctic ice sheets melted, “it is unlikely that they would grow back within any reasonable human timescale,” according to the report.

“Even a 2 degree temperature rise is likely to lead to more intense storms, some significant droughts and a largely unknown effect on sea level,” Lloyd’s Maynard said. “If we miss the target, we make the crossing of tipping points more likely, some of which can radically change the magnitude of the risk.”

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

Last Updated: July 10, 2009 05:03 EDT