This Saturday I participated in the climate change protest in Christchurch City. It was great to see the thousands who attended. I was struck by the difference in the crowd between climate change protestors who were out in force and a large group of affected insurance policyholders who seem unable to rally together in the same way. Perhaps policyholders have not made the connection between climate change and insurance yet ….
Climate change does not simply involve changes in temperature, precipitation or wind patterns.
Heat waves, tropical storms, hurricanes, tornadoes, and drought are part of that cycle too. Climate change is referred to by the insurance industry as an ‘emerging risk’ because there is uncertainty in respect of the scientific, political, social and economic parameters. And while there is uncertainty it is clear that over the coming years the insurance market will be affected by climate change in some shape or another – which ultimately means that you and I too are likely to be affected. And while there’s already a plethora of academics and insurance professionals working on how the industry may be least able to be affected by potential litigation – they’re using the asbestos and tobacco giant litigation problems as role models for the emerging tort litigation. Entire text books have been written about how the industry could avoid mega claims. And climate change related litigation has already begun e.g. American Electric Power Co v Connecticut, 131 S.Cr 2527 (2011); Kivalina v ExxonMobil Corp., No. 09-17490 F.3d , 2012 WL 4215921 (9th Cir. Sept. 21, 2012); Comer v Murphy Oil USA, 585 F.3d 855 (5th Cir. 2009).
It is clear to me that the majority of people do fail to see the relevance or the connection between insurance and climate change – it certainly has not passed me by. As I researched my first book The Christchurch Fiasco: the Insurance Aftershock and its Implications for New Zealand and Beyond, I was continually presented with stories and case studies where the insurance industry had simply pulled out of whole areas because their financial business case no longer made sense. Their risk was greater than the possibility of large profit margins – insurability was no longer an attractive prospect or affordability made insurance unviable for residents e.g Florida, recent areas of flooding in the UK, massive increased premiums and excesses in the Flockton basin, parts of hurricane country in the USA and the list goes on …In these situations who picked up the slack? – yes you guessed it, the governments.
There is a critical role for any government in adaptation to climate change and what is so clear to me is that the private insurance model simply will not work in a world with ever increasing natural disasters occurring. Private insurance will not be the risk management tool it claims to be when the proverbial poo hits the fan at an increasing rate. And let’s not forget the potential effects of a global financial crisis coupled with a global environmental crisis. Can you imagine?….
So who will be paying for the fall out of climate change? National resilience to global risk needs to be a priority so that critical systems continue to function despite a major disturbance and this means being financially prepared to pick up the pieces. We do not want a repeat of the Christchurch insurance fiasco on a larger scale.
Spending billions on ill-advised and environmentally damaging beach and coastal rebuilding projects, while ignoring the looming threats of rising seas and intensifying storms is fiscally irresponsible. We need to identify the major risk areas in the nation. We need enlightened approaches to replacing infrastructure and to look for opportunities to change the footprints of communities in an effort to reduce exposure to the next event. If money is going to be spent it should be on long term solutions such as relocating roads and buying out owners on high risk properties. Slowly private insurers will pull back from the coastal zone or raise their premiums to unaffordable levels, which will leave public insurers like EQC having to fill the void. It’s time to beef up EQC (a serious change of responsible management is also required, not the glib shambles we’ve been witnessing these past five years) in preparation, ensuring that vulnerable properties have access to flood insurance that in the future, will not be available in the private markets. See https://thechristchurchfiasco.wordpress.com/2013/04/15/introducing-kiwisure/
Increasingly I read articles with titles such as ‘insurers planning for climate change’ – yeah right! They’ll be the first to jump ship and we all know it! There is no doubt that climate change (manmade or otherwise) will have a massive impact on the pricing of long-term flood insurance. Nationally tailored responses to climate change are critical. The New Zealand Government should be sitting around the table now, discussing the best way forward, how to protect citizens and their equity from (un)certain disaster. We cannot rely on private insurance – when you need it most they simply will not be there. Citizens should also heed this warning. Mitigation is the best course of action and adaptation will be essential in response to actual or expected climate change impacts. As far as I am aware the New Zealand Government has not even begun to think about the future in these terms, or at least never published that it is. The private insurance industry on the other hand is well ahead of the game, already contemplating policy language changes, new exclusions, sub-limits, restrictions on underwriting certain industries, changes in risk and risk profiling, strategic changes to the language of existing exclusions, limitations, managing individual policy limits of liability and term lengths, managing overall aggregate liability exposure for a given class or line of business, creating intentional coverage ‘grants’ to serve market needs and participating in public policy debates regarding changes in relevant laws and creating new legal standards in order to secure the ability to continue underwriting with a larger degree of legal predictability. In addition the TPP agreement has the possibility of legal challenge against the NZ government in respect of ‘loss of profits’ in cases that the insurers will be able to concoct.
I’ll say it again as I’ve said it before – policy holder protection and private insurance are ideologically opposed – other solutions for citizen protection must be found.
Citizens of New Zealand, now is the time to be putting pressure on your Government to ensure that the EQC funds are not again pillaged by present and forth coming Governments for various causes other than those that they were meant to serve. Now is the time to be saying to the Government – it’s time to think and do something serious about growing some very large EQC reserves. Now is not the time to be blindingly assuming private insurance will protect us. We know it won’t.
As yet insureds have not focused much attention on the impacts of ‘climate change’ but the reality is that there is a huge potential exposure associated with climate change and that exposure is beginning to emerge. The time is right for policyholders to begin to put pressure on councils and government to answer adequately and implement realistic strategies for a myriad of expected climate change related issues, issues that policyholders will surely look to insurers to clearly indemnify.
In my opinion, given the urgency of the matter there is no time to waste – New Zealand. In fact this issue should be a major point in the upcoming general elections. Maybe Labour needs to take a second look at KiwiSure.