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Insurers Pressed to Take Lead in Tempering Climate Risk

U.S. property-casualty insurers, a group that includes Travelers Cos. and Allstate Corp., should take a leadership role in preparing for climate-change risks as severe weather becomes more frequent, a lobbying group said.

“Insurers have historically been influential in motivating society to reduce risks, whether by advocating for smoke detectors in buildings or safety restraints in vehicles,” Boston-based Ceres said today in a report. “Insurers have much to offer, and much at stake, in helping governments and private markets to further understand and develop solutions to better predict and prevent losses from extreme weather events.”

Ceres recommended that insurers support research on weather patterns, work with planners to improve buildings, bridges and other projects and promote awareness of carbon emissions. It urged investors to press insurers for more information on climate-related risk. Ceres is a lobbying group representing investment funds, environmental organizations and groups that promote social responsibility.

Hurricanes, tornadoes and other weather events cost U.S. insurers more than $32 billion in 2011, Ceres said, citing data from ISO, a unit of Verisk Analytics Inc. Insurers have been further hurt by lower investment yields and a sluggish economy, the group said.

“Beyond just declining profitability and returns, these increasingly visible trends could undermine some insurer’s ability to manage and, in some cases, even survive, future catastrophic, weather-related loss events,” Ceres said.

Costliest Year

Earthquakes and other catastrophes made 2011 the costliest year ever for natural disasters, with economic losses worldwide of about $380 billion, Ceres said, citing data from Munich Re.

Travelers, the lone insurer in the Dow Jones Industrial Average, raised rates after tornadoes struck parts of Alabama, Missouri and Massachusetts last year. Allstate, the largest publicly traded U.S. home and auto insurer, boosted prices as it bought reinsurance and avoided high-risk regions.

“We used to think about Tornado Alley and that was everyone’s measure of those areas of the United States that were deeply tornado exposed,” Travelers Chairman and Chief Executive Officer Jay Fishman said in a conference call on Sept. 11. “We’re now becoming increasingly impressed with the exposure” in other areas.

Tornado Alley stretches from central Texas to northern Iowa, and from central Kansas and Nebraska to western Ohio, according to the National Climatic Data Center.

Catastrophe Regions

Last year’s events drove economic and insured losses away from geographic areas typically associated with catastrophes, Ceres said. Eight U.S. states had insured losses of between $1.25 billion and almost $4 billion, the group said, citing ISO.

“We’re not looking at an industry right now that’s financially challenged, but given significant catastrophic events, that could start to change,” Mike Kreidler, insurance commissioner for the state of Washington, said in a Sept. 18 telephone interview.

Fishman said in December that his company needed to raise prices to account for tornado risk, regardless of the reason for the increase in claims from twisters.

“We are not meteorologists and we are not making any particular statement about climate change,” he said at a conference sponsored by Goldman Sachs Group Inc.

Allstate CEO Tom Wilson also addressed higher levels of natural disaster-related expenses. The insurer didn’t know if the surge in weather-related claims was tied to global warming, Wilson said in April 2011.

“But we’re acting as if this will be permanent and we need to recover those costs,” he said.

Arctic sea ice on Sept. 16 shrank to its lowest ever in a satellite record stretching back 33 years, the U.S. National Snow and Ice Data Center said Sept. 19. The shrinking Arctic ice cap is one of the most visible signs of climate change, according to NSIDC Director Mark Serreze.

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