2 CATASTROPHE TRENDS Lloyd’s One Lime Street London EC3M 7HA Telephone +44 (0)20 7327 1000 Fax +44 (0)20 7327 5229 www.lloyds.com what next on climate change? “between the 1960s and 1990s the number of natural catastrophes doubled and insured losses increased nearly seven-fold... we must engage better together and that means insurers, business and government working together” Lord Levene, Chairman of Lloyd’s, speaking at the 360 Live Debate www.lloyds.com/360 Lloyd’s is a registered trademark of the Society of Lloyd’s.© Lloyd’s 2006. what next on climate change? 3 360 Live Debate Highlights 11 Questions and Answers 20 News from Lloyd’s 24 Insuring a Sustainable Future What Next on Climate Change? What next on climate change? More than 00 executives from the worlds of insurance, Business and the insurance industry need business, government and science attended the Lloyd’s to do more to address climate change 60 Live Debate this summer. Event attendees told us that business and the insurance industry must improve their risk models and disaster plans to keep pace In this report we share the views and opinions raised with reality. during the debate and ask what do we need to do next of attendees at the 60 on climate change. live debate say that the insurance industry Key items which emerged from the debate are: % isn’t doing enough to understand and manage 1 The seriousness of the issue for the insurance industry 84 climate change risk. The need for each of us to take ownership and personal Climate-friendly behaviour is good 2 responsibility for climate change risk management The vast majority of event attendees are strongly aware of the Concern about whether climate change is high enough important link between climate-friendly behaviour and good 3 on the global political agenda, particularly in the US risk management practice. agree climate-friendly How understanding the impact of climate change can behaviour makes good give you a competitive advantage 4 risk management sense % – with the majority The need for longer-term strategies to deal with climate of these, some 55%, 5 change post-Kyoto 92 agreeing strongly. but there is more education and discussion needed However, it seems that the majority are not yet aware or perhaps not totally convinced of the full range of benefits which climate-friendly behaviour can bring to businesses. agree that the benefits thanks & acknowledgements to a company of climate- friendly behaviour % outweigh the costs We wish to express our thanks to Sir Trevor McDonald for chairing the 360 Live Debate and the panel of experts; but of these only Lord Levene of Portsoken, Thierry Desmarest, Bill McGuire, Dr. Robert Hartwig, Wyn Jones and Johan Eliasch. 79 6% agree strongly. 89% agree that companies which take climate change We would also like to thank the following people and organisations who have contributed to this report: seriously have competitive advantage over their peers. London School of Economics Lighthill Risk Network, London David Way, Alexander Forbes Fraser McLachlan, WindPro Over the coming months, Lloyd’s will continue to drive forward the discussion on climate change, focusing on three specific areas. If you wish to comment on the issues raised in this report please contact: We will invest in research to better understand the impact of change on business and the insurance industry. We will take the Trevor Maynard debate to the US, Lloyd’s largest market, where we are now actively exploring how we can collaborate with other insurance [email protected] organisations to do so. And we will lead further discussion around some specific issues which have emerged as deserving closer +44 (0)20 7327 6141 attention, such as the benefits and competitive advantage to business of climate-friendly behaviour. What Next on Climate Change? 5 The insurance view The media view lord peter levene sir trevor mcdonald Lord Levene, Chairman of Lloyd’s since 2002, has top level Insurers need much better understanding of climate Sir Trevor McDonald is now well into his fourth decade of The role of the media is to continue to inform the debate experience in business and government. After working in the change risk trends television and is a British broadcasting icon. Born in Trinidad, For journalists, the debate about climate change has gone defence industry, he held government posts including Chief Fierce debate still rages about the extent and rate of climate he was the first black news anchor in the UK. He joined ITN on for quite some time now. It’s a debate about saving the of Defence Procurement and Adviser to the Prime Minister on change and its likely impact. This creates uncertainty and that as a reporter in 1973, rising to become a newsreader by the planet, destroying the planet, what kind of world we live in, Efficiency and Effectiveness. Business roles include Chairman in itself means greater risk. Insurers need to take action now to end of the decade. He presented the News at Ten bulletin what kind of world we’re going to bequeath to our children and of the Docklands Light Railway, Chairman and Chief Executive manage it. They need to invest more in research to understand throughout the 1990s and its successor, the ITV News at Ten grandchildren. This debate informs life and should stimulate of Canary Wharf, Chairman of Bankers Trust International and climate change better. They also need a deeper comprehension Thirty, until 2004. He was knighted in 1999. Sir Trevor also action. Every reasonably well-informed secondary school child Vice-Chairman of Deutsche Bank. He was knighted in 1989 of the financial impact of weather-related catastrophes. launched Granada Television’s current affairs programme today knows something about the Kyoto treaty. and became a life peer in 1997. He has also served as Lord ‘Tonight with Trevor McDonald’ to investigate and present the Mayor of London. Businesses need to prepare better for greater critical news stories of the day. He believes climate change is The fact that there are still conflicting views about catastrophe losses undoubtedly one of those issues. climate change should not deter us from action The statistics tell the story Underwriters need to price risk correctly and use more We know the United States did not sign up to the Kyoto Between the 1960s and the 1990s, the number of natural comprehensive modelling that reflects the latest scientific Climate change is the biggest story of our age Protocol. This is something I’ve discussed myself with President catastrophes doubled and insured losses increased nearly findings. Realistic disaster scenarios need to be continually Concern for the environment and climate change was the Bush. Some protagonists say there is indisputable evidence seven-fold. 2005 was the worst year on record for property reviewed. Climate change is rapidly transforming the nature story of the late 20th Century and it will continue to be the that there are perceptible changes in ice flows and ice levels at insurers, with claims of $83 billion (£44.8 billion). Hurricanes in and gravity of the risks that businesses bear and we need story of the 21st Century. We have been reporting for many the North and South Poles. In contrast, Senator James Inhofe, the US accounted for $66 billion (£35.6 billion) of this total. It’s to make use of the latest expertise to underpin our risk years on the debate about CO² emissions, greenhouse gases, Chairman of the US Senate Committee on the Environment and no coincidence that the ten warmest years on record have all management strategies. dramatic weather changes, melting ice sheets around the Public Works, describes global warming as “The greatest hoax been since 1990. Glaciers are melting and sea levels rising. North and South Poles and the effect that all this has on our ever perpetrated on the American people.” Whatever people planet. It is clear that none of us will be untouched by the think, it is indisputable that huge change is taking place. We Business is not doing enough to tackle climate change “there can currently be few impact of all these changes. need to ensure that this is properly discussed and understood. Last year, a survey Lloyd’s conducted with more than 100 issues of more significance global business leaders found that only one in four companies than that of climate change... had reviewed their risk management strategy as a result of “Al Gore describes global growing weather-related catastrophes. This is particularly worrying when it is considered that the economic cost of We must engage better warming as the thing that global warming could double to $150 billion (£80.9 billion) together and that means has the earth teetering on a year over the next decade. insurers, businesses the balance... and government working together.” Now, not everyone would agree with that; some people will think that is vastly exaggerated... But the changes are indisputable. There must be a continuing discussion because the issue is quite obviously very pressing.” 6 What Next on Climate Change? The corporate view The Scientificview Thierry Desmarest Bill McGuire Thierry Desmarest, Chairman and Chief Executive of French The answer to the climate change problem Bill McGuire is Benfield Professor of Geophysical Hazards at The Kyoto Protocol is having negligible effect energy group Total, began his career in 1971 as Head of the has to be global University College London and Director of the University’s If successful, Kyoto will result in a slowdown in the rise of Mining Directorate in New Caledonia and later worked as a It wasn’t unreasonable for the Kyoto protocol to give Benfield UCL Hazard Research Centre.