Transcript Know Your Rights - United Policyholders
5/1/2020 Staying (insurance) cool in rising heat: Risk Management for Businesses and Cities in the face of Climate Change Sustainable Silicon Valley Annual Meeting Santa Clara, CA. December 8, 2008
Amy Bach
,
Executive Director
About UP
United Policyholders is a not-for-profit founded in 1991 that advocates for fairness in insurance transactions and is a help resource for commercial and individual policyholders: Loss recovery and legal support for individuals and businesses “Insurance Assurance” preparedness education workshops Interfacing with elected officials and regulators UP advances the interests of individual and business policyholders: In regions that have been hit by natural disasters By filing “Friend of the Court” briefs By publishing materials in print and on line at www.uphelp.org
At the NAIC and in legislative proceedings The organization’s work is funded by donations and grants.
UP has a large national network of volunteers and limited paid staff.
Challenges and opportunities:
The insurance industry has a uniquely high stake in the effects of climate change: Higher incidences of weather-related property damage claims will reduce the insurance sector’s (formerly) extraordinary profitability New risks that have limited data history will present pricing challenges If the industry can’t adapt to pricing these new risks, its role and influence will diminish The insurance sector has the potential to make very substantial positive contributions to solving climate change related problems
Insurers’ reactions to data
and their perceptions
re: increasing risks are in play and will have a substantial impact on all of us: Risks relating to new energy technologies that have no history present a challenge and an opportunity for insurers If insurers can’t adapt, fewer risks may be insured through the traditional carriers More “Captives”, Risk Retention Groups and government involvement will continue to grow (e.g. TRIA, Flood, EQ)
Insurers have clearly “noticed”:
Increasing hurricane activity and weather related property damage claims 1,000 wildfires in California in 2008 The State of Florida is now in the reinsurance and risk-modeling business
Insurance executives are essentially gamblers. Underwriters like predictable risks.
The predictive tools the industry uses have become more sophisticated over the years with computerized modeling, but climate change presents a level of unpredictability that has been described as “ominous”. Models and loss data that are based on historic events have limited relevance to the future.
Insurers’ reactions thus far:
Increasing rates and deductibles Adding exclusions Strategic market share reduction in regions that have been hit repeatedly by catastrophic losses Non-renewals Rejected apps Increased reliance on short term modeling firm data
A sampling of insurer positions in GHG litigation coverage disputes:
No covered “occurrence” because emissions have long been considered a byproduct of electricity; No coverage because damages complained of were “in progress” prior to the effective date of the applicable policy and are thus excluded from coverage; Carbon dioxide and GHGs should qualify as pollutants and thus be subject to a so-called “total pollution exclusion” in the policy.
Policyholder counsel disagree:
Covered “occurrence” because emissions part of normal business operations; Carbon Dioxide was not classified as a pollutant at the time policies were issued, The release of GHGs were not regulated emissions when policies were issued and therefore cannot be subject to the so called “total pollution exclusion”.
Forming a captive insurance company:
Somewhat analogous to medical savings accounts but much more complex Substantial tax advantages $40-50 million in annual sales Strong risk management program in place Relatively favorable loss history Trade assoc. or group with similar entities VT, NY, DEL, SC, DC Vermont Captive Insurance Association
The dynamic:
We want insurers not to stick their heads in the sand, but we don’t want them to over-react NAIC Climate Change Risk Disclosure Model
The insurance industry has the power to influence societal behavior favorably by: Providing mitigation incentives Managing and pricing property risks related to extreme weather events Continuing to create and implement new products offering solutions for climate change-related risks Refusing to insure development in ecologically sensitive areas Focusing on underwriting third party liability claims against heavy greenhouse gas emitting industries for the climate change-related exposures they create
Green initiatives by insurers:
Pay as you drive Coverage for green building materials Heightened attention to mitigation and preparedness Renewable energy related insurance products
To do:
Shop for policies that do not contain broad exclusions for events that could be associated with climate-change. Be prepared to retain specialized policyholder counsel to challenge claim denials that are based on an insurers’ overly broad reading of a policy exclusion.
Investigate options: Self-insuring for lower risk levels and purchasing high layers of coverage/gap policies where necessary and appropriate.
Risk Retention Groups Captive insurance companies Aggressive mitigation/risk management.
Educate and help employees be prepared to recover from increased weather related property damage by buying enough and the right kind of insurance on their homes. See http://www.unitedpolicyholders.org/prepare_protect.html
Resources:
Coverage for Climate Change: Footing the Bill for Carbon Footprints by Michael Conley, Esq. and Meghan Finnerty, Esq. Anderson, Kill & Olick, PC
Environmental Claims Journal, 20(4):1 –7, 2008 Captive Insurance Companies: A Growing Alternative Method of Risk Financing Journal of Payment Systems Law (June 2007) (with Isaac E. Druker and R. Mark Keenan) [email protected]
Amicus briefs, articles etc. at United Policyholders’ website: http://www.unitedpolicyholders.org/amicus.html
United Policyholders
Amy Bach Executive Director [email protected]