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Tim Wagner

15 May 2006
Tim Wagner

Tim Wagner, Nebraska Insurance Commissioner and Director of the US National Association of Insurance Commissioners (NAIC) speaks about their unanimous decision, in March 2006, to establish a task force on climate change.

The unanimous vote to establish a task force to examine the impact of climate change on the US insurance industry and consumers is a huge achievement, how did it come about?

The task force came about as a result of an ongoing review by the NAIC of climate change issues that commenced in February 2005, as well as recent catastrophic weather events that affirmed that climate change was a reality. The NAIC first heard during its February 2005 Commissioner's Conference from Jack DeBois of Swiss Re who reviewed with the commissioners weather events and their effect on insurance loss costs. He attributed some of these events to climate change. In March 2005 advocates sponsored a presentation by Evan Mills during the NAIC Spring meeting on climate change. At that time the Property and Casualty Committee of the NAIC which I then chaired was charged with investigating the issue. I put together a symposium to be held during the September 2005 meeting in New Orleans. Needless to say that symposium was postponed until the December meeting of the NAIC. The symposium was comprised of insurers, a catastrophe modeler, a scientist and an investor.

As a result of the presentations, it become clear that the climate change we are experiencing will have an enormous impact on the property and casualty insurance industry but the ramifications are such that other sectors of the insurance industry are affected. It was recognised that regulatory interest should not be limited exclusively to property and casualty insurance. Thus the issue was elevated to the task force level involving all insurance sectors.

How has the increase in extreme weather events over the past few years impacted on the insurance industry? Do you expect this impact to increase in the coming years?

Recent extreme weather events have adversely impacted the insurance industry. In my opinion these events will continue if not increase, based on the fact that ocean temperatures continue to rise thus creating energy to fuel weather events. While we are focused on the large events that result in billions of dollars we fail to grasp that there are many smaller losses related to changing weather conditions that are imbedded within industry losses statistics. Tornados and hail storms are examples of losses, less spectacular in size to recent hurricanes, that are contributing to increased loss costs. Flooding, which for the most part is not insured in the private sector in the U.S. seems to be on the rise. Droughts which are not insured with the exception of crops under a federal programs have also been a factor in regional economies.

How will the task force enable state regulators and insurers to mitigate climate change impacts on the insurance sector?

I don't believe that insurance regulators can mitigate the impact of these events. It will take a unified effort by many sectors of the economy and our concerned citizens to bring about the change necessary to mitigate losses. The impact of some weather related losses can be mitigated by the promulgation and enforcement of strong building codes on new construction and perhaps even on existing homes located in risk locations. In addition, however politically painful it is, a well thought out land use policy is paramount to mitigation. I hope that the insurance industry will take a leadership position in urging the legislative changes necessary to mitigate future losses. Our citizens will be called upon to continue to share a larger financial burden through policyholder deductibles and the cost of home improvements that will reduce losses.

Regulation will not solve these challenges. I am hopeful that the task force can contribute to the growing consensus that climate change is real and now is the time to formulate a national policy to address the issue. While the effects of existing {CO2} levels will be with us for decades, if not centuries to come, it is paramount that we recognise that if we do not act now the effects of climate change may well overwhelm us.

How closely will the states work together within the taskforce?

I view the task force as an instrument to create public awareness. Beyond that, I hope for input from others as to how the task force can provide for bottom line results. At this point I do not know how much state coordination is necessary or meaningful. Clearly geographic areas are impacted in difference ways by climate change. In some instances private insurance is involved and in others, this is not the case.

This initiative is just one example of increased cross-state action on climate change, do you think we will continue to see more of this in the future, and do you think programs such as this will encourage federal action on the issue?

I hope that, by highlighting the economic effects of climate change on the insurance industry, federal legislation will be given further consideration. Climate change is not simply an insurance issue. Climate change is an issue that tugs at the very framework of our economic, social and political well being at both national and international levels. The issue will bring into focus the interdependence of our well being.

Is there scope for the task force to work with other global insurers on climate change?

We certainly expect to work with global insurers on the subject of climate change. While U.S. catastrophe losses are borne by domestic insurers much of the ultimate burden of risk is shifted to the international reinsurance community when it comes to catastrophes. Only one significant U.S. domiciled reinsurance firm remains in the market place. The vast majority of reinsurance is placed with European and off shore reinsurers.

Do you think the positive steps taken by NAIC can be replicated by other sectors affected by and contributing to climate change?

I believe that insurance regulation by the various states contributes to our ability to speak out on this issue. While there are other industries that are state regulated, for the most part, regulatory oversight is with the federal government. As such, it is only after a buy in by the federal government that regulators in those sectors can have a meaningful impact. There are a number of industries that certainly should be speaking out. I believe that the energy industry is becoming increasingly involved in the issue. I think banking, by virtue of the lending and investment process certainly has a stake as insurers may no longer be willing to assume additional risk in some locales.

One of the problems with industry participation is that today it is the insurance industry that is directly affected. While almost every industry will be affected they are focused on their financial results today and tomorrow. Unfortunately they don't have the time nor the inclination to dwell on issues that may take a decade or so to have a direct impact on them.

How important do you think citizens are in driving positive change?

I think a buy in by our citizens is extremely important in driving a positive change in emissions. While insurers are representative of a special interest, they in effect are a voice of premium payers when it comes to paying any direct cost of climate change. In the end its always the policyholder that pays the cost through payment of ever increasing premiums.

The views presented in the Viewpoint Series are not necessarily representative of the views of The Climate Group.

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