After COP21 How Can Insurance Help us Adapt to Climate Change?

A mix of hype, excitement, cautious optimism, scepticism and just plain cynicism has purveyed the world of climate science and risk management following the latest (21st) Conference of the Parties in Paris, otherwise known as COP21.

The target was set at keeping a global average temperature rise to below 2 degrees Celsius.

On the 12th of December 2015, global leaders from over 190 countries signed a “fair, sustainable, dynamic, balanced and legally binding” agreement on tackling global warming and greenhouse gas emissions, according to President of COP21 Laurent Fabius.

The aim of the meeting was to reach a global agreement between all nations, on legally binding commitments to reduce greenhouse gas emissions and slow global warming. The target was set at keeping a global average temperature rise to below 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels by the year 2100.

For many years, this has been widely accepted level below which the world should avoid the very worst effects of unmitigated climate change. It is feared that without limiting carbon dioxide emissions (a major greenhouse gas), current day climate extremes in the form of droughts, floods, storms, etc. may shift towards becoming the norm.

Good COP, Bad COP

COP21 finished after an extended deadline to reach the global draft agreement. We can now ask whether the talks have done enough to get the ball rolling towards a zero-carbon future.

Firstly, it seems that there is a feeling of optimism due to the simple fact an agreement was reached at COP21. Some of the reasons behind this optimism include:

  • This is the first time an agreement has been reach on a global scale, based on two weeks of negotiations around the INDCs (Intended Nationally Determined Commitments) submitted before the meeting.
  • The media attention has brought great awareness of the issues and solutions surrounding future climate change.
  • Legally binding agreements have generally been developed for ongoing review of progress towards targets, and an effort to pursue ways to further limit the increase to 1.5 degrees Celsius.

This is promising stuff, especially in light of unprecedented levels of private sector engagement on climate-related issues. However, COP21 wasn’t perfect.

The global average temperature will still most likely rise to 2.7 Celsius by 2100.

The bad news is that even if the INDCs are adhered to, the global average temperature will still most likely rise to 2.7 Celsius by 2100. Considering the most vulnerable countries and many prominent scientists (including James Hansen) are calling for stronger targets than the current 2 degree rise, this would miss the mark by some way.

Also, the potential for climate driven migrations at the conference has not been a subject of any direct policy talks, but hopefully the issue should be mitigated somewhat by the agreement that have been made.

Nevertheless, the meeting has shown a level of solidarity between nations in tackling the issue of climate change, one in which we are all stakeholders. There is a clear acceptance to work towards meaningful goals on carbon emissions.

2 Degrees, or Not 2 Degrees…

Recent research suggests that the 2 degree limit will still lead to many of the ‘dangerous’ impacts of climate change that the COP21 negotiations are hoping to avoid, and in fact, much greater cuts are needed.

Research suggests that the 2 degree limit will still lead to many of the ‘dangerous’ impacts of climate change.

Furthermore, global average temperature has already risen by nearly 1 degree since pre-industrial levels (IPCC), which tells us that some changes in the climate and its extremes are already ‘locked in’. Many academics and pressure groups have been calling for a reasonable limit to be set at 1.5 degrees.

There is much uncertainty concerning how our climate extremes have changed due to global warming already, and more uncertainty still on how they will change in the future – increases in intensity of storms and duration of droughts are distinct possibilities. However, the risks are starting to show evidence.

Threats such as sea level rise are already affecting places like the Marshall Islands and Tuvalu, which are on the front line, as low lying islands, and are already looking to relocate their small island populations. The most vulnerable countries have been vehemently pushing for deeper commitments to cutting carbon dioxide emissions.

Global average temperature has already risen by nearly 1 degree since pre-industrial levels (IPCC).

There is a great contrast between the biggest emitters of greenhouse gases and those most vulnerable to the knock-on climate impacts.  The concept of climate justice was highlighted by COP21.

The developed countries have benefitted through industrial expansion based on burning fossil fuels for energy, and are also least vulnerable to the effects of rising seas, increased droughts and changes in weather patterns potentially leading to more severe climate extremes.

Developing nations have generally contributed to current carbon dioxide levels a lesser degree, and also have the least resilience to climate extremes, and the ensuing humanitarian crises, financial instability and, according to recent academic research, conflict (Kelley et al. 2015).

An attempt to redress this imbalance comes in the form of the Green Climate Fund in which contributions are made to mobilize USD$100 billion per year by 2020, to aid mitigation and adaptation efforts in developing countries.

Insurance is Part of the Solution

The financial sector largely turns its attention towards adaptation.

As mitigation strategies are put in place by COP21, the financial sector largely turns its attention towards adaptation, which includes building resilience in vulnerable communities, cities, infrastructure and business. In this space, the insurance sector has risen to a prominent position in tackling the issue through the COP21.

The wider insurance industry announced the launch of the Insurance Development Forum (IDF). Comprising governments, international institutions such as the UN, and members of industry, the IDF will drive the widespread understanding of risk to create resilient platforms for sustainable growth and human dignity.

An announcement by Mark Carney, Financial Stability Board (FSB) Chair, was made at COP21 to set up a Task Force on Climate-Related Financial Disclosures. The industry-led task force will assess how organizations should disclosure their physical, liability and transitional climate risks , and will be chaired by Michael Bloomberg (the UN Secretary-General’s Special Envoy on Cities and Climate Change).

This aligns with the UN endorsed ‘1 in 100 initiative’, which proposed a framework for companies to better assess and disclose their risk tolerances,  creating a financial incentive for companies to be more resilient.

At the same time, COP21 also saw the announcement of the UN Secretary-General Ban-Ki Moon’s Climate Resilience initiative named Anticipate, Absorb, Reshape (A2R) which is geared around public and private sector organisations including companies, governments, UN agencies, research institutions and others, to develop new solution to building resilience in the world’s most vulnerable countries, and adapting to the climate impacts that we will face over the coming decades.

There is a great contrast between the biggest emitters of greenhouse gases and those most vulnerable to the knock-on climate impacts.

The A2R initiative may be key in continuing to develop modelling capability (for example through the Resilience Modelling and Mapping Forum), developing risk sharing and transfer schemes via catastrophe funds like the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the African Risk Capacity (ARC) scheme, or expanding the market in micro-insurance protections, potentially allowing access to risk management and therefore financial stability, to 25 million previously uninsured low income people over the next five years according to the International Cooperative and Mutual Insurance Federation (ICMIF).

 


**Thanks to Sophie Evans from the CSP Practice for her help on this blog.

About Geoffrey Saville

Geoffrey Saville is a member of Willis Towers Watson's Analytics Technology Team, having joined the company in 2013…
Categories: Global Risks, Natural Catastrophe, Reinsurance, Weather risk | Tags: , ,

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