Will SA's Insurance Industry survive Climate Change?

The effects of a changing climate must be written into policies for insurance companies to ensure their survival as well as that of their policyholders.

"Agencies that ignore climate change as a threat may soon see themselves out of business," said Ed Gluckman, MD of Global Carbon Exchange (GCX), who is presenting the first ever South African white paper on Adaptation for the Insurance Industry at Santam’s Ecocentric Journey, currently underway in Cape Town (15 - 17 September 2009).

Vanessa Ott-Mentz, Head of Santam's Strategy Unit, who initiated the conference aimed at the insurance industry as a whole, said "It is clear that the local insurance industry and its extended participants are not prepared for the downside or the upside of the green economy.”

The conference includes a mix of local and international speakers who are exploring topics like the rising Cape sea level and its impact on the City, the environmental risk posed by fires, the Insurance Industry's role in adapting to climate change, and the role of new clean-tech industries in aiding global economic recovery.

African countries will be hardest hit by climate change, making up 22 of the 28 countries indexed to be the worst affected and least likely to mitigate the effects of climate change, according to a report released by global risk profiler, Maplecroft.

“Adaptation [to climate change] is a way of reducing vulnerability, increasing resilience, moderating risk and taking advantage of opportunities posed by the actual or expected climate,” stated Ed Gluckman of GCX, “This is what the industries future relies on.”

Jonathon Hanks, of Incite Sustainability, said that business response to climate change is inadequate.  Given that it takes time to change the direction of something as all-encompassing as industry in general, time is needed – but time is the one commodity which is in very short supply.

“Business leaders need to be part of the solution; while we are seeing action, the pace and scale is inadequate,” Hanks said.

The insurance industry, he noted, has a perhaps unenviable role in dealing with climate change. It is, after all, in the front line of requiring a changed business model as the nature of the risks faced by insured parties change dramatically with the morphing climate. Ernst & Young, for example, rates climate change as the top risk faced by insurers in its Business Risk Radar 2008.

Professor Clifford Shearing, of the University of Cape Town’s Centre for Criminology, said during the conference opening address that the notion that humans have little effect on a big planet is the fundamental flaw which is behind the global problem of climate change.

"Human systems are closely coupled to earth systems. Humans are not independent of the world,” Shearing said.

While it sounds simple and seems obvious, Shearing said this concept of separation is entrenched in the very roots of modern civilization – which is also why changing such a perception is a monumental task. “We cannot continue to act as if the planet is so big that it is immune to human acts.”

The insurance industry, said Shearer, will play a potentially pivotal role in creating regulations and incentives which will persuade clients to place themselves in a better position to adapt to and mitigate the effects of environmental change.