Insurers across all sectors are acknowledging the impacts of climate change on their business, but they are failing to engage in discussions about how to stay ahead of the potential threats, a new preparedness study says.

“Every segment of the insurance industry faces climate risks, yet the industry's response has been highly uneven,” says Mindy Lubber, president of Ceres, which conducted the study. “The implications of this are profound because the insurance sector is a key driver of the economy. If climate change undermines the future availability of insurance products and risk management services in major markets throughout the US, it threatens the economy and taxpayers as well.”

Ceres conducted the study on 184 insurance-company disclosures to the National Association of Insurance Commissioners' climate-risk survey. The results showed that out of a possible 50-points ranking how the industry reveals its plans to deal with the organizational and business risks caused by climate change, the average score was 7.3. Ceres says that included in the 50-point scoring system are a company's awareness of increased severe weather on business continuity, pricing, and customer interactions; a plan of how company management deals with these risks; the innovation of products related to climate change; and even efforts to reduce greenhouse gas emissions.

Meanwhile, 2012 was the second most extreme weather years in U.S. history and the warmest year on record in the lower 48 states, resulting in $58 billion in insured losses in the United States alone, Ceres says. 

Out of the 23 companies with a definite climate-change strategy, 13 are foreign-owned, and eight are property and casualty insurers. Leading this group are ACE Ltd., Munich Re., Allianz Group, Swiss Re Group, Farmers Group, The Prudential Group, Travelers Group, Hartford Insurance Group, Kaiser Foundation Health Plan and Zurich US Insurance. 

The Ceres study found that for 60% of companies, impacts on operations, revenue and profits from the hazard risks of climate change is a motivating factor for mobilizing a climate-change strategy.  However, about half view climate change as a future loss driver despite the International Panel on Climate Change Extreme Events reporting that it is already amplifying extreme weather and causing insured losses.  

Thirty-nine percent of the survey respondents say they worry about client exposure to climate change, including weather damage to client's physical operations, assets and investments. 

Lubber says the push for company transparency is the first and most important step towards building a strategy to deal with this new reality. Insurance companies are complex, and disclosure helps them state their goals and manage complications throughout the organization, when dealing with clients and in writing and placing policies.  

“Climate change is potentially a serious financial threat to the insurance industry, and needs to be on insurers' and regulators' radar,” says Washington State Insurance Commissioner Mike Kreidler, a leading advocate for stronger climate-risk disclosure and action by insurance companies. “If insurance is to remain available and affordable, companies will need to adapt. The last thing we want to see are unprepared companies simply pulling out of markets or seeking unreasonable rate hikes.”

He adds, “The underlying issue is that decades of underwriting practices conducted by the insurance industry are threatened because historical evidence is not going to be the guiding mark to what we will see in the future.”

Climate change, proposes Ceres, must be treated as a corporate-wide strategic issue that ensures sustainable product design and pricing that reflect the possibility of business interruption from global weather events, and promoting diverse investment policies that endorse the reduction of carbon emissions and strengthen hazard risk resiliency. 

This article was originally posted at PropertyCasualty360.com, a sister site of Credit Union Times.