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Dealing with a changing climate

16 September 2009 Santam

Taking climate challenge as a given, the next pressing question is whether or not business in general and the insurance industry in particular is up to the challenge. That’s a tough question which Jonathon Hanks, of Incite Sustainability, wasn’t afraid to confront at the Ecocentric Journey conference, hosted by Santam in Cape Town and presented in association with the University of Cape Town’s Criminology Centre and research-based consulting firm, Partners for Change.

Given, however, that business success is based on past behaviour, Hanks made the point that it is exponentially more difficult to change the habits and actions that got you to the top. “The bottom line is that business response 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 where climate change is concerned. “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.

It is a challenge, however, to which insurers are stepping up. Evidence of changing attitudes can be found in a statement from Santam itself; it ‘recognises that climate change is one of the biggest challenges ever faced by the insurance industry, if not the biggest’.

Shedding more light on the challenges, Ed Gluckman, MD of Global Carbon Exchange, explained elements of the acute risk faced by insurers: “If we look at extreme weather events, from 1990-96 there were 72 of them. From 1980-1990, there were 44; the decade before that, 29. There is a steady escalation which brings with it an increase in cost to society and government. Even right here in the Western Cape, nearly a billion Rand was spent in November 2008 in recovery from weather events, compared to just a couple of million in 2005.”

Despite that, and a growing change in the zeitgeist, he said the major response from individuals and business is a ‘wait and see’ attitude.

For those that move early, Gluckman believes, opportunity awaits. “In particular, there is opportunity coupled with the risk faced by the insurance industry. By squaring up to a responsibility to the public and leading through innovation in products and services, some insurance companies are adapting to the changing circumstances,” he said.

Adaptation is where the answer lies; but it has to happen faster.

While solutions to the emerging challenges of climate change exist, he advocates a comprehensive approach, which is based on awareness and availability of information. “More information carefully processed means less risk,” he asserted.

As the insurance industry looks at adaptation, Gluckman says best practice is emerging. Examples include a focus on the reduction of greenhouse gas emissions, reduced insurance premiums for lower-emission vehicles, loss prevention strategies such as incentivising clients (through, e.g. flood resilient homes). While these examples are international, he noted that in South Africa, Santam was the first insurer to join ClimateWise, measuring its own carbon footprint and is implementing strategies for management and reduction.

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