Insure Ourselves Against Global Warming

Insurance is dull, however this industry could stop Global Warming.  Its financial incentive to save us from ourselves is huge.  Oil, king Coal or big cars are threated by climate regulation; the insurance industry from the coming storm.  The industry that compensates risk is seeing its risks magnify and intensify year on year.  Other industries risks are regulations that may destroy their profits.  The insurance industry is threatened by its total annihilation through climate change.

The costs of natural disasters are mainly financial in the rich world and human in the south.  The rich world protects itself from risk by insurance.  Insurance makes more money when disasters do not materialise, but also through its investments.  Unfortunately with global warming the storm costs are skyrocketing.  The Stern reports states that:

“[...] weather-related catastrophe losses have increased by 2% each year since the 1970s over and above changes in wealth, inflation and population growth/movement. […] If this trend continued or intensified with rising global temperatures, losses from extreme weather could reach 0.5%-1% of world GDP by the middle of the century.”

The pooling of risk that the insurance industry exists on will become more and more expensive.

So what does an industry do that has the risk of becoming unaffordable? The insurance industry is adapting.  It is starting to invest in Green technology.  The prime example of this is the DESERTEC Industrial Initiative.  Made up of 12 European companies it plans to make the 400 billion euro project a reality.  Apart from banks and technology firms there is also Munich Re (the world’s largest reinsurer) amoung the investors.  DESERTEC is ambitious to say the least:  massive infrastructure investments, delivery of solar power to Europe by 2015 and as much 15% of the energy mix of Europe by 2030.  Such investments are only the start if we are going to prevent runaway climate chaos.

So does the insurance industry have the money to transform our society? The cost of action has been estimated at 2% of GDP. The insurance industry’s equity is massive.  The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange.   Therefore the answer is yes.  They have the reason to invest; they may just be the counterbalance to the destructive industries that have only their markets to loose through changing technology and lifestyles.

Is DESERTEC the only Green example in a sea of grey?  Is the insurance industry really going to save us?

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