Risky Business: Insurance Companies in Global Warming Politics • Matthew Paterson*

MatthewRisky Business Paterson Risky Business: Insurance Companies in Global Warming Politics • Matthew Paterson*

Observations that the interest in global warming shown by insurance companies could transform the political dynamics of global warming have been widespread. In various contexts, different writers have argued or suggested that the emergence of insurance companies in climate politics could facilitate more aggressive greenhouse gas abatement than would otherwise be the case. In some of the policy-oriented literature, Flavin and Tunali, for example, state that at the ªrst Conference of the Parties in Berlin in 1995: a more progressive conºuence of political forces [than the coalition of fossil- fuel dependent countries and companies] began to assert itself—prominently featuring the insurance and banking industries. As a business on the frontline of society’s most risky activities, the insurance industry has a long tradition of spurring policy changes to help reduce society’s risks.1 Journalistic accounts, such as Paul Brown’s Global Warming or Ross Gelbspan’s The Heat is On, express similar optimism, with Gelbspan writing: “It is the world’s insurers...whoareleading the frontline opposition against the fossil fuel industry.”2 Paul Brown, in a press conference with insurers at the Kyoto Conference in 1997, asked the (perhaps falsely naive) question: “So have you made any decision not to invest in Exxon yet?” reºecting this optimism.3 Many of the limited range of academic works that address the phenomenon also express such optimism. Based largely on the context of insurance’s role in global ªnancial systems, several such authors argue that insurance could signiªcantly affect climate politics by shifting the assessment of the general interests of capital.4

* I am very grateful to Adam Harmes, Mark Lacy, Johannes Stripple, and to the three reviewers for Global Environmental Politics, for perceptive comments on an earlier draft of this paper, to Dirk Kohler of Gerling Re for his time discussing the themes of the paper, and to John Wooden of the Association of British Insurers for providing me with ABI documents regarding climate change. 1. Flavin and Tunali 1996, 63. 2. Gelbspan 1997, 87; and Brown 1996, 185–198. See also Spencer-Cooke 1999. 3. As quoted in Leggett 1999, 304. 4. See for example Ward 1996, 871; Paterson 1996, 166; Newell and Paterson 1998, 696; and Karliner 1997, 203. For a fuller analysis that is skeptical of this optimism (on different grounds to those I emphasize), see Brieger, Fleck, and Macdonald 2001. The most prominent writer on

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Perhaps, most importantly, such optimism is expressed in the way that Greenpeace, followed by UNEP in particular, have pursued insurers to try to fos- ter their involvement in global climate politics. Jeremy Leggett, then of Greenpeace International, began pursuing insurers immediately after the Earth Summit in June 1992 to persuade them of the need to become involved in climate politics, and to evaluate their own investment strategies to mitigate global warming. Leggett felt that three sorts of responses by insurers were possible: They could hope that current increases in payouts for extreme weather events were temporary and would thus do nothing; they could act to reorganize business by raising premiums, increasing deductibles, and so on, to manage their exposure to ªnancial risk; or they could “strategically protect” their market by aggressively investing in renewables to mitigate global warming. Leggett’s belief was that while insurers may be tempted to go for the second of these, they could be pushed from adopting the second towards the third, arguing to insurers that when data cease to be actuarial, the second set of responses becomes inade- quate.5 UNEP became involved in 1995 with the establishment of the UNEP In- surance Industry Initiative and its organization of the Statement of Environ- mental Commitment by the Insurance Industry. For most observers interested in this phenomenon, it is of interest because of a belief that this creates the possibility of pursuing more aggressive greenhouse gas (GHG) abatement measures. The ªnancial size of the insurance industry (with estimates varying between $1.4 and $2 trillion), combined with the vulnerability of the sector (particularly the property insurance sector) because of the rise in extreme weather events, is the basis for this environmentalist optimism. In Time magazine’s words, “the crucial role played by the $1.41 trillion insurance industry in the world could change the dynamic of the debate about global warming.”6 In most stock markets, insurance companies account for between 20 and 25% of all share ownership, and about 10% of all global ªnancial ºows.7 Yet there is little political analysis of the dynamics at play here. With the exception of Brieger, Fleck, and Macdonald, the academic sources mentioned above only brieºy mentioned the involvement of insurers in climate politics. Brieger, Fleck, and Macdonald offer an analysis, which attempts to answer the fairly straightforward question: “Is the insurance industry altering the dynamics of climate change policy making?” While they offer a useful outline of emerging strategies by insurers, the analysis (despite their avowed intention) is based largely on the North American experience, where insurers have been much more skeptical concerning the impacts of global warming on their business than in the rest of the world (on which more below). They thus overstate the lack of ac-

insurance in IPE, Virginia Hauºer, has also noted their interest in global warming, but again the dynamics remain unanalyzed. See Hauºer 1997a, 134–6. 5. See Leggett no date. 6. “Burned by Warming,” Time Magazine, 14 March 1994, as quoted in Leggett 1996a, 42. 7. According to the Central Statistical Ofªce, insurance companies own 21.9% of shares on the London Stock Exchange (see CSO 1995, 8). The 10% of total global ºows ªgure comes from FM Research 2000, 56.

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tion by insurers on global warming. The other main academic work on the sub- ject is by Swedish researchers. This work adopts a pluralist approach, and is primarily concerned with the emergence of transnational alliances between environmental groups and the insurance companies, in terms of charting shifts in international politics away from state-centrism.8 More recent work by these researchers has outlined this shift in terms of debates on global governance, but this again remains largely “thick descriptive” in nature.9 My argument here is premised on a need to understand these strategies in the context of the contemporary and evolving political-economic location of insurance. I thus draw in the later part of the paper on themes developed within IPE. Broadly, I argue that if we examine the political-economic context within which insurance operates (even in the preliminary manner offered here) it is not particularly surprising that the responses of insurers to their interest in global warming has not translated into the sorts of strategies desired by environmentalists, namely investment strategies to reduce CO2 emissions. Without such political analysis, there is little understanding of why the optimism of environmentalists and other commentators has been by and large frustrated to date. Despite a small number of actions by some insurers (many of which are described below), there has been little shift in investment patterns of the sort envisaged by environmentalists. And environmentalists have expressed considerable disappointment in the overall responses by insurers. Jeremy Leggett’s book charting his involvement in international climate politics ends with considerable disappointment about the conservatism of insurers in relation to investing in renewables.10 One recent major publication by an environmental NGO, this time Friends of the Earth UK, reºects this disappointment by shifting tack considerably towards an attempt to pressure insurers into shifting investment using fairly general ethical investment arguments as well as those concerning the self-interest of insurance companies with regard to global warming.11 Another indication of this frustration is that Jeremy Leggett shifted the focus of his company, Solar Century, which was set up originally to build on his work with Greenpeace International by trying to promote investment by insurers and other institutional investors in renewable energy, especially PV solar technology. The company now plays a more general entrepreneurial role in promoting renewables.12 Clearly, the lack of clear political explanation of the role of insurance companies limits the understanding of their actions. I begin with an account of the emergence of the insurance industry as an actor in global climate politics. After brieºy outlining the reasons insurers have

8. Stripple, Chong, and Wiman 1997. 9. Carlsson and Stripple 2000. 10. Leggett 1999, 304. 11. FM Research 2000. I discuss developments in this regard in more detail below. 12. “Big Break: Solar Power Pioneer Gets Evangelical,” Financial Times, 5 September 1999. Solar Century’s website contains virtually no material speciªcally designed to persuade insurance companies to invest in solar. It is now almost exclusively a commercial site. See http:// www.solarcentury.co.uk.

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for worrying about global warming, I discuss the evolution of their responses. This shows that the dynamics of their responses are highly complex and it is by no means clear whether environmentalists’ optimism can be realized. I suggest that the responses of insurers have primarily been driven by their desire to reduce the climate-related ªnancial risks they face, and that many believe this can be achieved through the development of new ªnancial instruments, rather than through investments in greenhouse gas abatement. I then try to contextualize the role of insurers and their strategies regarding global warming in terms of the general location of insurance in the global political economy.

Insurance Fears Concerning Global Warming From the very early 1990s, some insurers started to voice concerns about the rise in incidence and severity of payouts resulting from large weather-related catastrophes, notably hurricanes and ºoods. As early as 1990, the Reinsurance Ofªces Association produced a report detailing the rise of such events, and observed that this could be connected to processes of climate change. Their report concluded that “even a cursory glance at some of the basic principles of reinsurance reveals the concern that ought to exist about the greenhouse effect scenario ...Ifeverthere was a case for moving the goalposts this is it.”13 Of course, this was the period when scientiªc and political activity on global warming was in- tense, with the Intergovernmental Panel on Climate Change (IPCC) report in 1990, and the start of intergovernmental negotiations which led to the Frame- work Convention on Climate Change (FCCC) starting in early 1991.14 Insurers noted that payouts on such catastrophes had noticeably increased from the mid-1980s onwards.15 Economic damages caused by natural disasters had exceeded $20 billion in only two years prior to 1988; after that date, they have been lower than $20 billion in only one year (1997).16 This increase is accounted for primarily by damages from windstorms and ºooding. In the 1980s, the damage from windstorms was $3.4 billion, while in the ªrst three years of the 1990s alone it was $20.2 billion. The largest windstorm was Hurricane An- drew, which caused $16–17 billion of damages, and led to the bankruptcy of several small insurers in Florida.17 For some, the potential threats to the interests and survival of insurers (and by extension, to large parts of the international ªnancial system) from these catastrophes were great. In particular, the world’s two largest reinsurers, Swiss Re and Munich Re, as well as some Lloyd’s syndicates, claimed as early as

13. Doornkamp 1990, as cited in Leggett no date. 14. For general accounts of the development of international climate politics in this period, see Pat- erson 1996, 16–71, or Bodansky 1993. 15. For a general overview, see Kron 2000. 16. Oberthur and Ott 1999, 74; and Munich Re 1998. Figures in constant 1998 US dollars. 17. Dlugolecki 1996, 69. Figures in constant 1990 US dollars. According to Strange (1996, 132–3), it also contributed to concentration in the international reinsurance industry, as ªrms merged to consolidate risks or left the business to avoid exposure to such catastrophic risks.

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1992 that climate change could bankrupt the global insurance industry.18 The losses from Hurricane Andrew raised the possibility that one storm alone could cause such damages, if it hit a major city such as Miami, Washington DCor even possibly New York directly. Insurers are concerned that the basis on which they underwrite risks of ºooding or storm damage is no longer adequate. Insurance relies fundamen- tally on the ability to assess these risks on an actuarial, or probabilistic basis. This enables insurers to set premiums that will cover payouts. If global warming is changing the incidence and severity of such storms, and especially if it is doing so in a non-linear fashion, then the data about storms, ºoods, et cetera, on which companies have set premiums are no longer adequate. Worse, setting premiums on an actuarial basis is perhaps impossible given the constant change implied by the process of global warming. At the same time, it is important to recognize that not all insurers have taken the line adopted by companies like Swiss Re and Munich Re. In particular, in North America many companies have rejected claims about the possible bankruptcy of the industry. In April 1999, the American Insurance Association (AIA) published a report, which said that American property and casualty insurance was only marginally affected by the rise in extreme weather damage. The report said that signiªcant exposure to weather-related losses only accounted for 20% of the industry’s premium base, and that the industry could adapt fairly easily even if such increases were due to global warming.19 In North America, only the reinsurers, at least as represented by the Reinsurance Association of America, and led by its highly active president, Frank Nutter, have been fairly positive about the global warming connection and the potential damage to the industry.20 At stake in the different accounts by European and North American insurers are three inter-related but distinct claims. One concerns the actual extent of changes in extreme weather patterns. A counter-argument coming from some American insurers is that the rise in payouts is primarily due to shifts in population, with large increases in coastal areas especially in the South and West of the US, and to the connected rise in property values, rather than because of any rise

18. Leggett no date., 26–30; Schmidheiny 1992, 64–66; and Schmidheiny and Zorraquin 1996, 121–2. That these organizations led the claims about global warming is perhaps unsurprising. Hauºer regards Munich Re and Swiss Re as amongst the most conservative of reinsurers in as- sessing which risks are insurable, while Lloyd’s was undergoing a huge general crisis because of massive losses involving potential bankruptcy of many Lloyd’s “Names.” See Hauºer 1997b, 88; and Strange 1996, 131. 19. “Global Warming Fails to Rufºe Insurers,” Journal of Commerce, 21 April 1999, as reproduced in Climate news, e-mail newsletter from the International Institute for Sustainable Development (http://www.iisd.org). See also Spencer-Cooke 1999. On the lack of activism amongst Cana- dian insurers, see Brieger, Fleck, and Macdonald 2001. Leggett (1999, 155–161) reports that even among reinsurers, at least in 1994, there was a high degree of skepticism. 20. There are other qualiªcations that can be made here. The (US) Insurance Services Ofªce also suggested in 1996 that a $50 billion catastrophe could bankrupt up to 36% of US Property and Casualty Insurers. See ISO 1996, as cited in Tynes 2000, 4.

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in the incidence of storms themselves.21 A second difference is that US insurers have generally taken a skeptical position on global warming itself, arguing that even if there is a rise in extreme weather patterns, this is in line with natural vari- ability, and cannot be attributed to global warming. Third, as shown by the AIA report above, US insurers have generally believed that even if extreme weather events are likely to continue, they do not threaten the industry in any serious manner. Nevertheless, with the signiªcant exception of most US insurers, the dominant international view is that global warming poses signiªcant risks to insurers. This can be seen in UNEP’s “Statement of Environmental Commitment by the Insurance Industry” adopted in November 1995, which has been signed by companies accounting for a substantial portion of the major insurers in Europe and Asia, and a small number from North America.22

Emerging Strategies Whether or not companies have expressed a belief that the rise in payouts in the early 1990s was connected to global warming, a number of strategies in response to that rise have occurred. Most have ultimately frustrated the expectations of the environmentalists who placed great store in the role insurers could play in climate politics, as noted in the introduction. In relation to the two main activities anticipated by environmentalists—lobbying governments to reduce emissions, and switching investments away from fossil fuels—a number of initiatives have been taken by some insurers.

Lobbying Governments The ªrst instance of lobbying activity was a seminar organized for insurers and other ªnancial sector representatives by Greenpeace at the ªrst Conference of Parties (COP) to the UN Convention on Climate Change in Berlin in March 1995.23 In November 1995 a small group of insurers, coordinated by UNEP, established the Statement of Environmental Commitment by the Insurance In- dustry.24 This sets out a general framework for advancing insurers’ activities in this area. While it is a general environmental statement, it is clear that global warming was driving the interests of insurers in such an initiative. By May 2000, the statement had 84 signatories from 27 countries.25 At the second COP in Geneva in July 1996, the insurers held a seminar on “Climate Change and the Insurance Industry,” and included a claim in their position paper that governments should act to “negotiate early, substantial reduction [in CO2 emissions],

21. See for example Changnon and Changnon 1998. 22. See the list of signatories to the statement in UNEP 2000, which reºects this regional variation. 23. See the contributions published in Leggett 1996b. 24. UNEP 1995. 25. UNEP 2000. Only two of these signatories, one reinsurer and one insurer, were from the US.

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compared to ‘business as usual’,” and to base their actions on the precautionary principle.26 This phrase, while rather vague, does clearly amount to advocating strong action (certainly stronger action than was then being envisaged by gov- 27 ernments) to limit CO2 emissions. At Kyoto the following year, much the same phrase was used in the industry’s position paper.28 But in general, and certainly by comparison with oil and coal companies, the insurance companies have been rather quiet in political fora concerning climate change. At the third and fourth Conference of the Parties to the Climate Change Convention, in Kyoto and Buenos Aires, there were meetings of the companies involved in the UNEP Insurance Industry Initiative, but there was no real development of the position they had adopted, and little sense that the general position had generated more concrete plans. It was clear, as emphasized by Salt,29 that insurance companies are politically naive compared to oil and coal companies in their dealings with governments over global warming.

Asset Management and Investment Switching The primary aim of environmentalists such as Leggett was to persuade insurers to switch their investments away from fossil fuels and towards renewable energy, to contribute to a mitigation of climate change. In December 1996 Leggett organized the “Solar Investment Summit” in Oxford, designed to bring together insurers, bankers, and people from the solar energy industry, to stimulate investment in the latter.30 This led to the setting up of “Solar Century,” an organization intended to promote such investment by insurers. There were two rationales given for why insurers should engage in this sort of asset management. First, insurers could regard such switching as actively reducing the risks to which they may be exposed in the future. Investing in alter- natives to fossil fuels would reduce the rate of global warming and therefore the increases in intensity and frequency of storms and thus their payouts. While there is a much too complex chain of causality between investments and climate outcomes for this approach to be convincing as an individual strategy, it could be more credible as a collective approach by insurers, especially when it is also designed to put pressure on government policy-makers as well. A second argument which has been advanced to support other arguments in favor of insurers switching their investment practices is that if governments

26. UNEP 1996. 27. It was certainly also interpreted this way by commentators at the time. See, for example, Lash 1996. In other contexts, insurers have made similar calls. For example, the Association of British Insurers responded to the new Labour UK government’s Climate Change Draft Programme by supporting the UK government Emissions Limitations Programme, but it felt that more emissions reduction could be pursued by promoting renewable energy more aggressively. See ABI, no date, paragraph 2.3. 28. UNEP 1997. 29. Salt 1998. 30. Leggett 1997.

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do act to limit CO2 emissions, then the proªtability and therefore the share price of fossil fuel companies is likely to be negatively affected. Mark Mansley of ªnancial analysts Delphi International argued in 1994 that institutional investors need a long-term strategy for investment in fossil fuels, which may be ad- versely affected by greenhouse gas abatement policies.31 Such an assumption has become more widely assumed by investment analysts since then.32 There- fore there may be a purely market incentive to get out of fossil fuels or act within those companies to shift their strategic planning away from coal and oil. There is a debate within the insurance industry about the viability of strong versions of investment switching, such as full disinvestment from fossil fuel companies (as in the Paul Brown quote in the introduction). The majority view would still be skeptical of the practicability of this. But investment switching could also involve shifting the balance of portfolios within existing investments, and actively promoting investment in alternative energy sources and technologies.33 Much of the activity in this area has involved the development of “CO2 benchmarks.” In order to be able to develop investment strategies that take into account the CO2 intensity of a ªrm’s activities, a standardized measure of such intensity is required. UNEP and some of the companies involved in the Insurance Industry Initiative have worked to develop such measures. Once fully developed, this would enable investors to judge companies according to their CO2 intensity, either because they wanted to mitigate CO2 emissions through their investment strategies, or because of an assumption that if governments pursue emissions reductions policies, then CO2 intensive companies become more of a ªnancial risk.34 There is little systematically collated evidence as to actual changes in the investment practices of insurers. What is publicly available gives little evidence beyond a few projects by a limited number of companies. Places where such evidence might be expected, such as UNEP’s Insurance Industry Initiative website, or in its Finance Initiative newsletter, provide no such systematic evidence.35 Neither do most of the environmental reports even of companies who have been highly involved in UNEP’s initiative provide detailed information regarding this.36 Swiss Re is one that does. It reports in its 2000 Environmental Report that it had set up in 1996 a speciªc investment fund for environmental projects, primarily in renewable energy systems, and had by the end of 2000 invested 46 million Swiss francs in eleven companies for such purposes. In addition, in-

31. Mansley 1994, 1996. 32. See, for example, Whittaker 2000. 33. For example Nutter 1996, 82–90; also Whittaker 2000. 34. Carlsson and Stripple 2000; Thomas and Tennant 1998; and Thomas, Tennant and Rolls 2000. 35. As of mid 2001 this is located at http://www.unepfti.net/. The newsletter is available via the website. UNEP expects to be building up information on this over the next year along with the revamping of the initiative after a restructuring period between 1999 and 2001. Personal communication, Ken Maguire, UNEP Finance Initiative, 12 June 2001. 36. See, for example, Storebrand’s Environmental Report 1998–2000 and Corporate Social Respon- sibility Action Plan 2000–2002, at http://www.storebrand.com.

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vestments had been made in other investment funds such as New Energy Invest, designed to support renewable energy projects.37 Gerling Re also has some material on its Gerling Sustainable Development Project, designed to develop investment projects that move the ªnancial sector towards sustainable development, especially in the energy ªeld.38 An even more immediately plausible approach concerns direct use of solar energy in company buildings, and in property investment, in which insurance companies are important investors. Solar Century was founded on the assumption that investments by these companies in their own building stock would have a signiªcant impact on the market for solar photovoltaic (PV) electricity, producing economies of scale, which would then improve the competitiveness of PV and make it commercially viable.39 Insurance companies themselves own huge physical assets and thus account for large amounts of energy use. Bode gives a fuel bill ªgure of $0.75 billion for US companies alone.40 Several companies have engaged in this. The Union Bank of Switzerland, Royal Guardian Ex- change and the Natwest Group are ªnancing solar power installations on their buildings.41 Swiss Re has an internal target to reduce energy consumption by 5% per employee and to reduce business travel.42 With a similar intent to investment switching, some insurers have also developed insurance instruments that are themselves designed to limit CO2 emissions. UNEP reports for example that one German insurer has developed car insurance policies where reductions in the premium are offered if the car owner can provide evidence that she or he has a season ticket for public transport. Al- ternatively, the car owner can lease a piece of forest to compensate for the CO2 emissions of the car.43 While these all provide examples of some action by individual insurers to contribute to a mitigation of global warming, the overall picture is of very little change in practices in asset management. FM Research notes that the most that the majority of individual companies who have signed UNEP’s statement of environmental commitment have done is to highlight more prominently the Green or ethical funds they have in their portfolio.44 While much progress has been made in a number of companies, for the majority of companies, invest-

37. See Swiss Re 2000. 38. At www.gerling.com. Along with Solar Century and New Energy Invest, already mentioned, some other investment companies have also emerged to promote renewables. In particular, a Swiss company Sustainable Asset Management has emerged, and it has developed a joint sustainability index to work like the CO2 benchmark, but along broader lines, to turn the environmental risks a company produces into a ªnancial risk for the investor (see www.samsmartenergy.com). I am grateful to Dirk Kohler for pointing this out to me. 39. Leggett 1997. 40. Bode 2000, 2. 41. Roth 1997, 27. Roth quotes Tim Mills of Royal Guardian Exchange as saying that they were doing this to “lead by example” rather than speciªcally as a strategy to kickstart solar energy by helping to lower unit costs. 42. Spencer-Cooke 1999, 38. 43. UNEP no date. 44. FM Research 2000, 69.

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ment managers still primarily operate on the basis of traditional assessments of ªnancial risk and rates of return, and have yet to be convinced of the value in investing speciªcally in renewable energy projects.45 What exists is a fairly small number of companies with activist managers who have been able to persuade investment managers of the competitive advantage of such investment.

Coping with Risks: Triage, Science, and Securitization But the main areas of activity have been less in the area of mitigation of emissions causing global warming, and more in the area of managing the risks to which insurers are exposed in relation to extreme weather events. Three areas of activity have been prominent here: directly reducing insurers’ exposure by withdrawing cover or increasing requirements such as building standards; increasing the predictability of their operations by working with scientists to improve long-range prediction of extreme events; and spreading risks to the capital markets by the development of ªnancial instruments such as “catastrophe bonds.” In particular, in immediate reaction to events such as Hurricane Andrew in 1992, many insurers attempted to withdraw cover from particularly vulnerable areas, increase premiums in those areas, or act in other ways to minimize their exposure.46 In Florida, premiums went up by 72% between 1992 and 1996 after Hurricane Andrew (and doubled in the Miami area). In Hawaii, after Cyclone Iniki, one insurance company stopped offering residential cover.47 Overall, premium income for American reinsurers increased by 40% between 1991 and 1994.48 In many cases they have been heavily regulated both in relation to the provision of cover and in relation to premiums, so that such attempts to minimize exposure are limited. In Florida, the state acted in 1993 to prevent major insurers from canceling existing policies.49 Increasingly, however, they have acted in more subtle ways to achieve this goal, for example by making more stringent requirements in relation to building standards so that damage to buildings by events such as hurricanes is limited. Insurers in the US formed the Insurance Institute for Property Loss Reduc- tion in 1994, renamed as the Institute for Business and Home Safety (IBHS) in 1997.50 This acts to educate those insured about how steps can be taken to reduce the losses caused, for example, by storms. It also acts to lobby for stronger building codes, so that losses would be reduced.51 In Canada, the primary focus of insurers has been towards such adaptation to climate-induced risks.52 The US

45. Dirk Kohler, personal communication, 10th July 2001. 46. Nutter 1999, 47–8; Roth 1996; and Changnon et al. 1999. 47. Tucker 1997, 91–2. For other examples, see Gelbspan 1997, 99. 48. Changnon et al. 1997, 431. 49. Tucker 1997, 91; and Hutchings 1996. 50. Changnon et al. 1999, 58–9. 51. Changnon et al. 1999, 59–60. 52. Brieger, Fleck and Macdonald 2001.

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industry has also started directly to incorporate building construction standards in the calculation of premiums for weather-related disasters.53 There are, of course, various problems with this strategy. Firstly, if data cease to be actuarial, calculations concerning premiums will be very difªcult to get right and the overall risks will still increase. Secondly, as outlined, insurers are often regulated so that they cannot withdraw cover, and the premiums are also regulated. Thirdly, and perhaps ultimately most importantly, the strategy is self-defeating in the long term. Insurers make their money by insuring people and property, and if they progressively reduce cover, they progressively reduce their potential sources of income. In addition, insurers have substantially increased their collaboration with atmospheric scientists.54 The aim here is to develop ways of predicting extreme events over periods of a year to eighteen months. Breakthroughs in weather modeling in the mid-late 1990s, in particular in the understanding of the El Nino phenomenon, have made such forecasting possible, or at least soon to be possible.55 Since most property insurance covers one year periods, this then gives companies a much better basis for setting premiums (within regulatory limits), but also ªnding other ways of spreading the risk, for example through securitization (see below). In other words, while climate change threatens the actuarial nature of the data on which insurers normally make decisions about premiums, et cetera, insurers are attempting to mitigate this by providing alternative means of predicting the risks to which they will be exposed. There have been a number of initiatives in this regard. In Bermuda (a major center for reinsurance, mostly serving the US market), the Bermuda Biologi- cal Station for Research established a Risk Prediction Initiative in 1994 in order to provide insurers with more reliable information about the likelihood of extreme weather events.56 In the UK, the TSUNAMI Initiative was established in 1998, funded by insurers such as CGNU and Royal and Sun Alliance as well as the UK Department of Trade and Industry. Organized through the Natural Envi- ronment Research Council, its mission is to engage in such research “to improve the competitiveness of the UK insurance industry by using science to improve the assessment of risk.”57 In the US, some atmospheric scientists have seen the emerging interest of insurers in climate change as an opportunity for entrepreneurial behavior on their part, and have actively built links with insurers to market their knowledge.58 The particular dynamic between the scientists and the companies is not entirely clear, but certainly, the most prominent group of scientists in the US (a group centered around the company Changnon Climatolo- gist) advances a fairly skeptical view on the question of whether the rise in prop-

53. Nutter 1999, 48. 54. Nutter 1999. 55. Land 1996. 56. Knap 1997; Michaels et al. 1997; and Stix 1996. 57. See “TSUNAMI: Linking Insurance and Science,” http://www.nerc-bas.ac.uk/public/tsunami/ about.html. Read 10/08/98. 58. See for example, Changnon et al. 1999, or Michaels et al. 1997.

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erty damage is due to global warming or not. They tend to emphasize the role of increases in population in coastal areas.59 To the extent that the interests of the companies for whom these climatologists work are opposed to reductions in CO2 emissions, it is reasonable to assume that they are chosen as consultants in part because of such a skeptical position. With the assistance of the improved data concerning extreme weather events, insurers have reorganized their business, particularly the reinsurance business, in order to spread the risks emerging from such large payouts.60 After Hurricane Andrew, a group of catastrophe reinsurers was established in 1994 in Bermuda purely to cover such large-scale risks, using collaboration with scientists in order to improve prediction as the basis for the calculation of premiums. But much of this has involved securitization of the risks borne by reinsurers, and thus represents a signiªcant shift away from traditional forms of reinsurance cover. In December 1992, catastrophe futures ªrst began to be traded on the Chi- cago Board of Trade.61 Formally known as a set of ªnancial instruments called insurance-linked securities (ILS), the rationale for reinsurers was that as payouts on large-scale weather disasters increased, the available pool of money to pay out would be insufªcient using traditional reinsurance techniques.62 For example, the total pool of catastrophe capital in the US is $6–8 billion, and the total pool of the reinsurance industry only $30 billion. By contrast, events with the intensity of Hurricane Andrew could cause losses of up to $100 billion if they hit the right place.63 However, reinsurers could access the much larger pool available through the capital markets, thus making the system considerably less vulnerable to a quick succession of disasters with losses such as occurred in Hurricane Andrew. At the same time, the high payouts in the late 1980s and early 1990s drove the price of traditional reinsurance up, meaning there might be demand for different forms of reinsurance that might be cheaper.64 The ªrst instruments traded were futures and options contracts, but from 1995–6 onwards, catastrophe bonds were developed, and quickly became much more successful. These are instruments where the purchaser of the bond agrees to forfeit the proªts that would be made (and often even their principal) should a spe- ciªed event occur. In return, very high rates of return are available and, importantly for investors, they diversify risk since the risk of catastrophes is not corre-

59. For example Changnon and Changnon 1998. 60. Some discuss the increase in the use of securitization of catastrophe insurance without refer- ence to increases in the incidence of catastrophes, whether caused by global warming or not. Tynes, for example, discusses this entirely in terms of innovation within the insurance industry, providing a more ºexible range of means of dealing with such large scale risks, and suggests that while the interest in such mechanisms was stimulated by the large payouts for catastrophes in the early 1990s, there is no reason that they will necessarily become the primary form of catastrophe reinsurance, and demand for them will ºuctuate with the price of traditional reinsurance. See Tynes 2000. 61. Punter 1999; Stix 1996, 28; and Tynes 2000, 7. 62. Michaels et al. 1997; and Chookaszian 1998. 63. Michaels et al. 1997. 64. Swiss Re 2001, 3; and Tynes 2000.

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lated with those of normal risks of investments in ªnancial markets.65 Effectively, this is a renewal of an older form of insurance, where, as long ago as Hammurabi, king of Babylon, ships were insured via advances from lenders who agreed to forfeit their loan should the ship be lost at sea.66 The California Earthquake Authority issued the ªrst such bond in 1995/6, with the intention of securing $1.5 billion. While this was ultimately trans- formed into a standard reinsurance contract, the idea stuck, and since 1997, such contracts have grown rapidly.67 According to Swiss Re, roughly US$8 billion of such ªnancial instruments were issued between 1996 and early 2001.68 The pace slowed in 1999 and 2000 as the price of traditional reinsurance de- clined (due to a fall in catastrophe payouts), but picked up again in 2001 due to a number of catastrophes in 2000.69 While the development of such instruments is still in its infancy, it is clear from the prominence of discussions of this in online journals such as Global Re- insurance,70 that they are regarded by reinsurers and the ªnancial markets as a promising development both in terms of stabilizing and managing risk for insurers and reinsurers, and as lucrative markets for investors. Tynes reports that several reinsurers (including Swiss Re and Hanover Re), as well as investment banks like Goldman Sachs and Merrill Lynch, “are competing to take advantage of ªnancial markets by developing and issuing catastrophe related ªnancial instruments.”71 However, as noted above, one of the key conditions that have made such developments possible has been the increasing credibility of long- range models for predicting the likelihood of natural disasters, giving investors a sense of the risk they are undertaking.72 Hence the interest some climatologists have taken in marketing their services to reinsurers, as suggested earlier. Such a development would in principle mean that even if long-term climate changes were occurring, the insurance business would make its own operations secure and stable.

Explaining Environmentalist Disappointment

Limits to Insurance Action Reviewing this account of the strategies adopted by insurers, the failure of insurers to live up to the expectations of many environmentalists regarding global

65. See Cabral 1999 for a good description of how these instruments work, and some of the vari- ants on the catastrophe bond. On their value in diversifying risks, see Tynes 2000. 66. Punter 1999. For other historical examples, see Stripple 1998, or Hauºer 1997a, 29. 67. Punter 1999. 68. Swiss Re 2001, 3. 69. Swiss Re 2001, 18 and 32. A full list of these instruments can be found at Swiss Re 2001, 35. 70. Available at http://www.globalreinsurance.com. For examples, see Punter 1999, Chookaszian 1998, and Cabral 1999. 71. Tynes 2000, 7. 72. Punter 1999.

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warming can be explained in part by features internal to the industry. These cre- ate a number of constraints and opportunities for investment managers, which tend to make signiªcant shifts in insurance company investments unlikely. First, a number of internal factors militate against action to limit CO2 emissions. The very ªnancial size of the companies means that insurance company share ownership in many ªrms is large enough to make them price- makers; attempts to sell shares on a signiªcant scale would therefore be self- defeating since if they sell their size of holdings is sufªcient to make the share price drop directly, making such a move unviable ªnancially.73 The ªduciary responsibility of companies to maximize revenue for both shareholders and poli- cyholders limits their freedom of movement in investment matters (as do a host of other regulatory restrictions on particular types of investment),74 the internal organizational splits between life and general insurance and between risk managers and investment managers, and perhaps a conservative and certainly short- termist culture of investment75 all contribute to such an effect. The ownership of insurance companies themselves may also be complicated. For example, Gen- eral Motors’ pension fund is the major shareholder in a large Bermuda-based insurer. Such shareholders are unlikely to look favorably on moves that affect their own economic interests. Second, opportunities have emerged for insurance managers to limit their exposure to climate-related risks even if climate change alters the actuarial nature of insurance data. In particular, the possibilities created by new methods of predicting weather patterns, in particular extreme weather patterns, especially combined with the creativity of ªnancial actors in inventing new ªnancial prod- ucts, have enabled a risk management strategy to emerge. Third, there have been splits internal to the industry, with divisions in particular between insurers in the US and Canada and in the rest of the industrial- ized world about the threats posed to the industry by climate change, as shown above. Reinsurers, with greater vulnerability to large-scale catastrophe risks, have been more, although not unanimously, united. In particular, the lack of a substantial presence in the UNEP Insurance Industry Initiative by US insurers

73. Harmes 1998, 107. This phenomenon was observed early on in the development of insurance companies as investors; see Clayton and Osborn 1965, 68. Since then, the percentage of shares owned by insurers has increased signiªcantly, compounding the price-maker problem. The percentage of shares on the London Stock Exchange owned by insurers was 10% in 1963, and 21.9% in 1994 (see CSO 1995, 8). There has been a related shift since the 1960s. At that point, institutional investors were still unwilling to be active investors in terms of inºuencing board policy. Now, they regularly intervene in company management (see Clayton and Osborn 1965, 188–9; Harmes 1998, 106–8; ABI 2000; and Kostant 1999). Kostant offers a slightly different expectation for the increase in activist investing by institutional investors, suggesting that the experience of attempting to use “exit” to discipline management was that it failed to have this effect, so exercising “voice” became a better strategy. 74. On this point, see Dickinson and Dinenis 1996, 151–156. 75. Harmes 1998, 105. Dlugolecki (2000, 589) shows this at work in relation to climate change, with Hurricane Andrew only having a very short-term effect on reinsurer’s pricing policies. In conversation, Dirk Kohler referred to the industry culture as like a “dinosaur, very difªcult to move.”

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has limited the Initiative’s capacity to lobby effectively in the US. This is a crucial factor in climate politics because the US accounts for roughly 25% of global CO2 emissions, and because of its economic and geopolitical might.

Limits to Insurance Power: Political Economies of Insurance76 But it would be a limited explanation that focused only on these factors internal to the industry itself. Also important in understanding the disappointment of environmentalists is the failure of the latter to fully understand the political- economic context in which insurance operates. They have relied on an intuitive, crude account of the power of the industry based on assertions of its ªnancial size and role in share ownership, and have failed to understand the limits of the effectiveness of such crude measures. First, even though it is commonly asserted that ªnance is dominant in an era of neoliberal globalization, a factor that implicitly underlies the optimism of many environmentalists, it is not the case that insurers are key nodes in orga- nizing the direct economic power of ªnance. Thus the direct economic power of insurers in shaping investment strategies of ªnance capital is relatively limited, despite the apparent size of the insurance industry. The globalization of ªnance is commonly noted to be one of the key elements of a globalizing economy.77 As a result, many now assert that ªnance is structurally powerful with respect both to other corporations and to states, primarily because of its extreme mobility.78 This argument does however face powerful objections, which are usually either that capital mobility is nowhere near complete enough to enable ªnancial actors to discipline states and corporations in the ways often assumed through their power of exit, or that even in condi-

76. It might seem odd not to use more heavily in this section two prominent writers who have written recently on the political economy of insurance. Strange (1996) and, more substantially, Hauºer (1995, 1997a, and 1997b) have both analyzed the political economy of insurance. However, their focus is considerably different from my interests here. They focus primarily on how insurers act to discipline other actors in the global political economy primarily through their power as insurers rather than as investors. Thus they focus, for example, on debates within the industry over whether war or other political risks such as terrorism or defaults on foreign debt are insurable, and how the changing views within insurance on this question affect state and corporate activities since they involve a redistribution of the risks of overseas investment. My interest here involves a signiªcantly different question about the power of insurers, being based on their power as investors, not their direct coercive powers as distributors of risk. Hauºer (1997b) does say a little on this question, as I note below, but the focus is still primarily on insurers as distributors of risk. Hauºer (see for example 1997a, most clearly at 23) also works with a limited conception of what “the international” is regarding insurance. Her assumption is that the international aspect of insurance is about the international nature of the risks under- written, rather than (for example) the international nature of the investments, or cross-national ownership of companies. She thus also studies in practice only the small fraction of the global insurance industry that is engaged in international risk insurance. 77. The literature here is enormous. For a small selection, see O’Brien 1992; Helleiner 1994; Martin 1999; Cerny 1993; Hirst and Thompson 1996; and Held, McGrew, Goldblatt and Perraton 1999, 189–235. 78. For example O’Brien 1992.

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tions of high levels of capital mobility, states retain signiªcant policy levers over which they have signiªcant control.79 Nevertheless, even if we accept the arguments about the dominance of ªnance, it does not follow that insurers are themselves powerful. If we look at the early stages in the globalization of ªnance, this was led by two developments. Firstly, it involved the emergence of the Eurodollar market in the late 1960s, which (along with other developments such as the US ªscal and trade deªcits associated with the Vietnam war and the re-emergence of Japan and Ger- many economically) gradually undermined the ªxed exchange rates regime of the Bretton Woods system by putting pressure on the value of the US dollar.80 This thus led to a ºoating exchange rates regime that emerged between 1971 and 1974, promoting further growth in foreign exchange markets. Secondly, it involved widespread deregulation of ªnancial markets throughout Western economies, spurred both by ideological elements in particular in the US and UK, and also by technological developments which spurred competition between ªnancial centers. This enabled ªnancial actors to trade in many markets simultaneously, and gave them greatly increased freedom to de- vise a huge range of new ªnancial instruments, collectively known as deriva- tives. Thus deregulation has stimulated a huge increase in ªnancial ºows, and a multiplication of types of ªnancial exchanges. The point for the present purposes is that this process of the globalization of ªnance was led in part by government actions.81 But it is more that the ªnancial actors leading ªnancial globalization were the traders in stock and foreign exchange markets, not the institutional investors. As Hauºer indicates, the deregulation of ªnance created changes in practices by insurers, both by creating demand for new types of insurance (for example against the risk posed by increased ªnancial volatility), and also by creating proªt-making possibilities for insurers as investors as deregulation stimulated a boom in share prices in the 1980s. The proªtability of such investing in the 1980s enabled cutthroat competition in insurance premiums to emerge, as overall proªts were increasingly sustained by investment activities. But insurers followed such trends; they did not lead them.82 As a globalized ªnancial market has emerged in the 1980s and 1990s, investors have become progressively more powerful. However, the actors who quickly became dominant in shaping investment practice were not those who had grown so quickly in the 60s and 70s (pension funds and insurers). At the same time as ªnancial globalization was occurring, so was a process of ªnancial disintermediation, whereby individual investors engaged directly in the ªnancial market rather than (or in addition to) using intermediaries such as

79. For example Hirst and Thompson 1996; Helleiner 1994; Martin 1994; and Watson 1999. For a balanced overview, see Held, McGrew, Goldblatt, and Perraton 1999, 227–234. 80. Held, McGrew, Goldblatt, and Perraton 1999, 201–2; Ruggie 1983; and Strange 1994. 81. Helleiner 1994 82. Hauºer 1997b, 93–4.

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banks, pension funds and insurance companies.83 New types of investment ve- hicles emerged to take advantage of the newly globalized and deregulated ªnancial markets. Of particular importance have been hedge funds and mutual funds, which have grown enormously in the 1990s.84 Harmes shows clearly that there is what he calls an “investor food chain,” to describe a hierarchy of investors in terms of leading practice in investment. At the top is the largest of the hedge funds. In the middle are the other hedge funds and the mutual funds, along with the pension funds and insurance companies. At the bottom are individual investors. Those lower down the “food chain” use the large hedge funds as indicators of sensible investment practice, and engage in technical analysis, buying and selling on the basis of short-term price movements rather than economic fundamentals. Investment decisions are thus collectively made by a small group of key investment managers, the rest following a “herd instinct.”85 Thus even if insurers and pension funds have absolutely larger assets, this is not necessarily a signal that they make the fundamental decisions affecting investment practice. In the crisis of the European Exchange Rate Mechanism (ERM) in the early 1990s, the insurers, pension funds and mutual funds provided most of the money that forced successive currencies out of the ERM, but they responded to market-leading decisions by hedge funds.86 A second general political-economic point would be that in addition to limitations to its direct economic power, the environmentalist optimism was falsely premised on a pluralist account of the power of business, which assumed that large industries could organize themselves politically to lobby governments. It would be more common in IPE (in particular from a neo-Gramscian framework) to focus on the political organization of capital in general, and in particular its increasingly transnational organization—the emergence of a “transnational capitalist class.”87 Kees van der Pijl analyzes the emergence of this class, in terms both of networks of interlocking directorships, and of key organizations through which transnational capital is organized as a class. In terms of the capacity of corporations to ensure the success of their political agendas, such networks and organizations are key in terms of articulating the interests of transnational capital in various political fora, and of course informally through the social networks connecting political and business élites. In the present period, van der Pijl highlights organizations such as the (World) Business Council for Sustainable Development, the various neoliberal think tanks such as the

83. Harmes 1998, 100. Leyshon and Thrift (1997, 122) do suggest that what they call the New In- ternational Financial System is driven by pension funds and insurers, overtaking banks as co- ordinators of ªnancial capital. But their research is mostly based on the 1980s, and misses the rapid emergence of mutual and hedge funds in the 1990s. 84. Harmes 1998; and Useem 1996. 85. Harmes 1998, 102. One of the early participants in the UNEP initiative expressed this also, using the same phrase, a “herd instinct” driving investment practice. Tessa Tennant, personal communication, 1/6/01. 86. Harmes 1998, 103, citing IMF 1993, 11. 87. For example Gill 1991; van der Pijl 1998; and Overbeek 1993.

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Mont Pelerin Society or the Institute for Economic Affairs, but in particular the World Economic Forum, as key institutions through which such capitalist class consciousness is formed. Insurance companies are not signiªcant in such networks. Van der Pijl effectively shows (although this is not his concern) that they are neither important in terms of their location in networks of interlocking directorships, nor in the organizations through which the interests of transnational capital are articulated.88 While there are some (although by no means all) of the UNEP Insurance Industry Initiative key companies involved in the World Business Council for Sustainable Development, there are none involved in the Trilateral Commission, or in the Club of Rome.89 The third political-economic point to make would be that even if insurers had signiªcant economic power in shaping investment strategies, and even if they were well networked in shaping the political interest of (globalizing) capital as a whole, their general political outlook is in contradiction with an inter- ventionist set of principles required to mitigate global warming. Even though, as Harmes indicates, insurers are not key players in the institutional investment grouping in political terms, they have nevertheless been a part of a political bloc, which has helped to shape and reproduce, in various ways, neoliberal political economy. That insurers clearly advocate this sort of political project can be seen for example in their activities in relation to the GATS of the WTO, and other WTO liberalization projects.90 Adam Harmes shows persuasively that the rise of institutional investors, including insurance companies, has helped to reproduce neoliberalism, both through coercive and consensual mechanisms.91 The rise of institutional inves-

88. On inter-locking directorships, see van der Pijl 1998, 61, and on transnational capitalist class organizations, see van der Pijl 1998, 129–135. 89. Information on the WBCSD from http://www.wbcsd.org/memlist.htm#alphabet, read on 30/5/ 01. The insurers who are members include Allianz, Gerling, Swiss Re, Storebrand, Yasuda Ma- rine and Fire. All except Allianz have been prominent in the UNEP initiative. Information from Club of Rome refers to the Club’s “active members,” from http://www.clubofrome.org/organization/active.html, read on 30/5/01. Information on the Trilateral Commission from http:// www.trilateral.org/memb.htm, read on 30/5/01. There is no information on the WEF website regarding their general membership (and an e-mail inquiring about this made it clear the information was not public), except to say that membership is from “over 1000 companies, from over 70 countries, representing major ªrms from all sectors of business and industry.” There is a list of key supporting companies referred to as “strategic partners,” and also a list of members of the Forum Council, the WEF’s main policy-making and implementation body. No insurance companies are on either body. See http://www.weforum.org, read 12/6/01. No information on membership of the Bilderberg Group is publicly available—practically all of the Internet sites are conspiracy theory sites about Bilderberg as the site of the government of the “New World Order.” 90. See for example the Association of British Insurers Annual Report 1999–2000, which reports on their strong involvement in such projects. ABI 2000, 26–7. The ABI is worth using as repre- sentative of the global industry, as London has long been the biggest center internationally for insurance. In addition, the ABI also has many members from continental Europe, such as Mu- nich Re and Swiss Re. Hauºer notes (1997b, 79) that the international norms for international risk insurance were developed in Lloyd’s by the turn of the twentieth century. 20% of all international general insurance is handled in London (see HMSO 1995, 20). 91. Harmes 1998.

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tors has meant the centralization of investment decision-making to a fairly small number of fund managers, who are closely connected and often share key assumptions about the appropriate investment criteria. These are then used to discipline governments through currency markets and ªrms through the capital markets and direct participation in company management. Investment decisions become based on increasingly short-term time horizons.92 As a result of these changes, the emergence of neoliberal restructuring—governments adopting ºexible labor market policies, dismantling welfare systems, and so on, and ªrms engaging in “downsizing” and other short-term oriented management strategies to boost share price—is produced by institutional investor power.93 At the same time, institutional investors draw the people on whose behalf they invest money into reproducing neoliberalism in a (more) consensual fashion. The funds managed by these investors are managed on behalf of large numbers of individuals as pension funds, life funds, savings, shares, and so on, and thus those people are drawn in to understanding the reproduction of neoliberal norms as fulªlling their own interests, stabilizing neoliberalism politically. The role of insurers thus in reproducing neoliberal norms sits uneasily with any highly activist stance regarding global warming. First, there are contradictions, for example, between the way in which institutional investors have promoted neoliberalism and the way that they are calling on governments to intervene in markets to promote renewable energy.94

Conclusions All of these political-economic accounts of insurance complicate the optimism of environmental organizations concerning the openings produced in climate politics by the emergence of insurance as a player. It would be an overstatement to say that it makes such optimism entirely misplaced. But it is perhaps worth venturing on the basis of this analysis an interpretation of the emerging dynamics of insurance in climate politics. First, insurers are unlikely to be particularly effective as political lobbyists of governments to reduce emissions. Despite their economic importance as a sector, they are unimportant in the political articulation of a general interest of transnational capital, through which any deep transformation of state and corporate interests towards emissions reductions might be effected. While they continue to make proclamations concerning the need for emissions reductions measures by states, these are in the noise of proclamations speciªc to climate

92. Harmes 1998, 105–6. 93. Harmes 1998, 107. 94. This is not as stark as the contradiction between pension fund holders promoting downsizing and the consequent reduction in the number of workers able to afford pension plans, but nevertheless a contradiction exists.

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negotiations, and do not go to the heart of world political-economic decision- making fora. At the economic level, their currently dominant activities, both in terms of CO2 benchmarking and possible investment consequences, and in terms of securitization of their risks (especially for reinsurers), may nevertheless be important. Regarding CO2 benchmarking, this could clearly have some impact on emissions. But it is of course dependent on state action. CO2 benchmarking is only important in affecting investment practices to the extent that insurers simultaneously start to regard CO2 intensity as a ªnancial liability (unless they start to invest heavily in renewables as a deliberate strategy to mitigate global warming, which at present appears unlikely). CO2 benchmarking only makes sense once governments have clearly signaled intentions to reduce emissions and therefore affect the proªtability of CO2 intensive companies. By contrast, securitization of risks is already established and developing fast, as outlined above. So the key question might be what happens if insurers securitize their risks, while doing little to contribute to emissions abatement? If they are successful, as looks increasingly plausible, in working with the atmospheric scientists to model weather patterns over a year to eighteen-month period, then effectively a response emerges in which insurers, combined with those who can still afford the increased insurance premiums, practice triage on the rest of the world. Insurers, reºecting their economic interests and their ªduciary responsibilities, protect their capacity to pay out on the claims of those insured affected by extreme weather events, while sanctioning the increases in the incidence and intensity of such risks. They enable property owners in Miami to re- build their homes, while condemning increasing numbers of people, say in Ven- ezuela or Mozambique (two places where recent ºoods connected by some to global warming have killed tens of thousands) to greater economic vulnerability because they are less able to afford higher premiums. A more inequitable response to global warming would perhaps be difªcult to envisage. In World Risk Society, Ulrich Beck states that insurance, which is the “great- est symbol of calculation and alternative security,” does not cover (among other things) “climate change and its consequences.”95 Of course the above analysis shows that he is wrong. Insurance companies appear at present perfectly able to deal with climate change and its consequences. However, Beck’s notion of “organized irresponsibility” captures neatly what is going on in relation to insurance and climate change. As insurers manage to adapt to the threat posed to their industry by global warming, they thus simultaneously manage to reproduce the general condition under which their own (partial) responsibility for reproducing a certain model of development is obscured. Beck’s notion of organized irresponsibility “denotes a concatenation of cultural and institutional mechanisms by which political and economic élites effectively mask the origins

95. Beck 1999, 4.

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and consequences of the catastrophic risk and dangers of late industrializa- tion.”96 The practices of securitization of reinsurance, which is currently the dominant approach of insurance companies to deal with the threat posed by global warming to their interests, is thus a perfect example of such organized irresponsibility.

References ABI. No date. Response to the UK Climate Change Draft Programme. London: Association of British Insurers. ______. 2000. Annual Report 1999–2000. London: Association of British Insurers. Beck, Ulrich. 1999. World Risk Society. Cambridge: Polity Press. Bodansky, Daniel. 1993. The United Nations Framework Convention on Climate Change: A Commentary. Yale Journal of International Law 18 (20): 451–558. Bode, Aiko. 2000. Frequently Asked Questions about the UNEP Insurance Industry Ini- tiative. Geneva: United Nations Environment Programme. Available at: Http:// www.unep.ch/etu/ªnserv/insurance/question.htm. Brieger, Tracey, Trevor Fleck, and Douglas Macdonald. Forthcoming 2001. Political Ac- tion by the Canadian Insurance Industry on Climate Change. Environmental Politics 10 (3). Brown, Paul. 1996. Global Warming. London: Blandford. CSO. 1995. Share Ownership: A Report on the Ownership of Shares at 31st of December 1994. London: Central Statistical Ofªce. Cabral, Warren. 1999. Securitisation out of the Niche. Global Reinsurance 8 (1). Online journal available at http://www.globalreinsurance.com. Carlsson, Sverker, and Johannes Stripple. 2000. Climate Governance Beyond the State: Contributions from the Insurance Industry. Unpublished paper. Cerny, Phil, ed. 1993. Finance and World Politics. Cheltenham: Edward Elgar. Changnon, David, and Stanley A. Changnon Jr. 1998. Evaluation of Weather Catastro- phe Data for use in Climate Change Investigations. Climatic Change 38 (4): 435– 447. Changnon, Stanley A., David Changnon, Ray Fosse, Donald Hoganson, Richard Roth, and James Totsch. 1997. Effects of Recent Weather Extremes on the Insurance In- dustry: Major Implications for the Atmospheric Sciences. Bulletin of the American Meteorological Society 78 (3): 425–436. Changnon, Stanley A., E. Ray Fosse, and Eugene L. Lecomte. 1999. Interactions Between the Atmospheric Sciences and Insurers in the United States. Climatic Change 42 (1): 51–68. Chookaszian, Dennis. 1998. Securitisation: The First Five Years. Global Reinsurance 7 (5). Online journal available at http://www.globalreinsurance.com. Clayton, George, and W.T. Osborn. 1965. Insurance Company Investment: Principles and Policy. London: George Allen and Unwin. Dickenson, A. M., and E. Dinenis. 1996. Policy Issues in Insurance: Investment, Taxation, In- solvency. Paris: OECD.

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