the insurance economics of going green insurance at the vanguard institute for business and home...
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The Insurance Economicsof Going Green
Insurance at the Vanguard
Institute for Business and Home SafetyAnnual Conference
Tampa, FL
December 1, 2009Download at www.iii.org/Presentations/
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: (212) 346-5520 Fax: (212) 732-1916 [email protected] www.iii.org
2
Presentation Outline
• Going Green: Insurance Industry Update A challenge that is being met
• Seeing Green: Summary of Insurer Initiatives• Case Studies in the Demand for Green Insurance Products
1. Green Home: Home as Power Plants
2. Green Commercial Power Generation
• Energy Demand, Energy Policy & Climate Change Huge growth in energy demand will fuel demand for insurance
• What Motivates Insurers to “Go Green”? Role of Catastrophe Losses Role of Demographics & Economics
Q&A
“Going Green”: Insurance Industry
UpdateGoing and Staying Green is a
Challenge not Unlike Countless Others Insurers Have Met for
Centuries
4
What “Going Green” Really Means for P/C Insurers
• The Fundamental Role of Insurers is to Assess & Quantify Risk• Quantification Permits the Risk to be Accurately Priced• Determination of Price (Premium) Allows Risk to Be Transferred from
Bearers of Risk (Policyholder) to Insurer in Exchange for Risk Appropriate (Actuarially Sound) Premium
• The Role Played Insurers and the Process of Pricing “Green” or or “Climate” or “Environmental” Risks is No Different than Any Other Risk Assumed Over the Centuries
• Insurers Can Play a Key Role in the Area of Climate Risk Only if Two Conditions Are Met:• Insurers are allowed to charge risk appropriate premiums on new products that
are designed to mitigate climate risks• Insurers are allowed to adjust premiums, underwriting criteria, risk assessment
and risk management practices to reflect actual and expected changes arising from climate threats
• Where These 2 Conditions Are Met, Insurance Markets Functions Well; Shortages, Govt. Plans if Not Met.
• Biggest Threat is Regulatory Interference (Rate, U/W)
Economics of Green Insurance Follows a Time-Tested Process
Source: Insurance Information Institute
RISK IDENTIFICATION
Property Damage
Liability Risks
Management Liability
Political Risk
Economic Risk
Regulatory Risk
Investment Risk
RISK QUANTIFICATION
Loss Trending
Catastrophe Modeling
Scientific Research
Climate Models
Tort Threat Assessment
Regulatory Environment
RISK MITIGATION (SOLUTIONS)
Risk Transfer (New or Adapted Insurance
Products)
Capital Market Solutions
Risk Retention
Loss Avoidance & Reduction
Building Codes & Land Use
Uninsurability Issues
Prevalence of Insurer Climate-Related Activities: 2008
Promoting Loss Prevention9%
Aligning Terms & Conditions w/ Risk-reducing Behavior
6%
Crafting Innovative Insurance Products
22%
Offering CarbonRM & Offsets
5%
Financing Customer Improvements
2%Investment in CC Solutions5%
Building Awareness & Participating in Public Policy*
14%
Leading by Example17%
Carbon Risk Disclosure**14%
Understanding CC Problem6%
Creating innovative insurance solutions
is #1 activity, among 643 activities.
*A maximum of 1 is tallied, as there is too much subjectivity in assigning weights to each individual activity**Multi-year responses to a given disclosure initiative are counted once.
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Insurer Climate-Related Activities 2008 vs. 2007
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Meeting the demand for insurance products is the most
important role of insurers—and is experiencing the fastest growth
Key Insurer Climate-Related Innovations and Trends
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Insurer Climate Risk Practices for Underwriting, Investment and
Asset Management
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Green Insurance Market Map by Insurance Line
Homeowners Industrial, energy, property
Real Estate
Business Interruption
Flood
Rebuild more resilient or green after loss
■ ■ ■ ● ●
Bundled carbon offsets ■ ● ● -- --
Incentives for low-emissions or loss-resilient profile
■ ■ ■ ● ●
Performance: Energy savings & carbon reduction risk
● ■ ■ ● --
Performance: Energy production & carbon reduction risk
■ ■ ● ■ --
Finance for carbon-reducing or loss-resilient improvements
■ ● ● -- ●
Advisory, inspections, or risk-management services
■ ■ ■ ● ●
Climate-risk modeling services -- ■ ■ ● ●
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
■ At least one current example of implementation by an insurer, reinsurer, or intermediary
● Applicable but no current insurer implementation
-- Not applicable
Insurers Are Seeing Green
Summary of Green Initiatives in Global Insurance & Reinsurance Markets
Summary of Insurer Climate Activities in 2008
• Some 643 specific activities from 246 insurance entities from 29 countries
• These include activities on the part of: 189 insurers 8 reinsurers 20 intermediaries 27 insurance organizations 34 non-insurance entities
• Property insurers (Home, Comml., Auto) are driving majority of activity while life-health insurers lag behind
• Significant increase in activity by liability insurers in past year – insurers to willingly bear climate-related litigation costs borne by policyholders?
• Minor activity in travel, warranty, industrial, BI, inland marine, WC, crop, prof. liability, and comm. auto insurance Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Availability of Insurance for Renewable Energy Products
Source: Ceres
Wind power generation risks are readily insurable; Biofuels, waste not far behind.
Insurer Climate Activities in 2008
• European insurers have deepest history with climate initiatives
• Some 37% of all activities logged in the United States, the most of any country.
• More activity in Europe as a whole (47%) vs. North America (40%)
• Growth since 2007 in all areas, but particularly: climate science and analysis, crafting innovative products, carbon RM and offsets, and leading by example
• Areas with lowest year-over-year increase in activity are: loss prevention and direct investment in climate-friendly industries.
• In past 10 years, the number of climate-related activities has increased eight-fold
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Key Innovations and Trends• Many more insurers offering “green-buildings” products
and services• Almost all climate-related innovations in D&O, political
risk, prof. liability and enviro. liability have appeared in past year
• Auto and Transport: two dozen insurers now offer pay-as-you-drive (PAYD) insurance with discounts up to 60% for policyholders who drive less than avg. driver
• 2008 First: insurance products to manage risks from carbon capture and storage (CCS) projects
• More attn. on renewable energy as a market for insurance
• Climate-related microinsurance – coverage for low-income populations w/out access to traditional insurance – about 7 million policyholders
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Key Innovations and Trends
• Insurer investment in and financing of low- and no-carbon technologies more common but still small proportion of total investments
• Increasing participation in carbon markets, including carbon trading, ins. for credit risks, political risks, plus advisory services, and carbon-neutral products
• At least 25 insurers now prepare annual Corporate Social Responsibility reports
• More insurers recognizing correlation between sustainable practices and reduced risk, e.g. discounts on WC and Enviro. for customers with sustainable practices
• Insurers increasingly recognize importance of addressing carbon footprints, e.g. 17 insurers and reinsurers & 6 brokers have achieved carbon neutrality.
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Green Buildings
Encouraging GHG reductions while reducing risk: green buildings
• High impact: ~40% of GHG emissions are associated with building use
– green building practices can reduce emissions by 50%+
• Loss prevention benefits of green buildings
– improved indoor air quality
– disaster resilience
• Large potential market: $140B in green building in US by 2013
• 39 products from 22 companies
• New idea: “retro-commissioning”Source: Ceres
ClimateWise Initiative
Source: ClimateWise: http://www.climatewise.org.uk/
• 40+ insurers under the ClimateWise umbrella recently called for a 40% cut in global GHG emissions by 2020
The climate crisis poses a systemic risk to the global
economy…Climate change must be tackled now if insurers
are to continue to play their fullest role in managing
climate risk. … If governments fail to act today,
substantial markets may become uninsurable tomorrow.”
-ClimateWise statement, 22 October 2009
• ClimateWise is result of work initiated by HRH The Prince of Wales in the UK with the insurance industry
Climate Risk Disclosure
Source: Ceres; NAIC
The SEC is moving toward mandating disclosure in 2010:• Oct. 2 speech by Commissioner Walter – “I believe that it is time for us to consider issuing interpretive guidance regarding [climate risk] disclosure.”
• Oct. 19 interview with Walter – SEC staff are preparing recommendations. Two options on the table: guidance and rulemaking.
NAIC unanimously passed a climate disclosure survey in March 2009 – Two areas of focus:
Climate Change Impact Assessment• Geographic areas subject to rate increases or non-renewals• Investment risk • Loss reserves
• Covered perils subject to future exclusions or limitations • Access to reinsurance
• Solvency risk and capital requirements • Cat modeling
Climate Change Mitigation Activities
• Loss mitigation and prevention: – Policies and products – Risk classification
• Invested assets
McGraw Hill Construction Green Outlook 2009
Source: McGraw Hill 2009 Green Outlook
•Green building has become a growing part of today’s construction industry
•Despite the market downturn, 75% of commercial real estate execs say they will continue to build green
•By 2013 McGraw-Hill Construction estimates today’s green building market will more than double to $96-$140B vs. $36-$49B today for residential and nonresidential buildings
• Green building has expanded rapidly due to no. of factors such as growing public awareness of green practices, heavy increase in govt. interventions, and recognition by owners of bottom line advantages
• The amount of green office space constructed in 2008 was about 25X the amount in 2000 and is growing at 50X that rate
Green Buildings: Hype or Sound Investment?
Source: Business Week, Green Buildings: Fewer Sick Days, Higher Rents, by Chris Palmeri, November 19, 2009
Study by University of San Diego and commercial real estate broker CB Richard Ellis Group found that:•Tenants in green buildings are more productive based on: av. # of sick days and a productivity change
•Respondents reported an average of 2.88 fewer sick days in their current green office vs. their previous non-green office
• Decrease in sick days translated into a net impact of nearly $5.00 per sq ft per year based on av. tenant salary, office space of 250 sq ft per worker and 250 workdays a year. Increase in productivity translates into net impact of $20 per sq ft
• Study also found green buildings have 3.5% lower vacancy rates and 13% higher rental rates than the market
• Findings based on surveys of 154 buildings under CBRE’s management totaling over 51.6m sq ft, housing 3,000 tenants in 10 markets across U.S.
Case Study #1The Green Home
Green Home Insurance: Product Innovations Will Continue, but There Are Risks,Costs
Source: National Geographic, Sept. 2009; Insurance Information Institute
“Green” Homes Have Distinct Insurance Coverage Needs
•Photovoltaic panels
•Electrolizer (splits water into H2, O2 molecules for night
use)
•Fuel Cell (recombines H2, O2
to generate electricity)
•Water Tank
•Additional plumbing, wiring
•Charging Systems for Electric Car
Turning a home “green”
is not without risk or cost—a
mini power plant
Solar Means Bring and Storing the Energy of the Sun to Where it’s Needed, When Needed
Source: National Geographic, Sept. 2009; Insurance Information Institute
“Green” Energy Needs Infrastructure &
Insurance Solutions
•Solar Involves Investment in New, Rapidly Changing
Technology
•Generation: Massive Solar Arrays;
Photovoltaic; heated oil
•Transmission: Need to Hook into Grid,
Transport Hundreds of Miles
•Storage: When sun doesn’t shine, need to store power—molten
salt power tower
Red areas are sunny
and flat, but energy
needs to be stored,
transported
Case Study #2Green Commercial Power
Generation
Alternative Energy is More than Just Pretty Windmills—It’s Big Business
Source: Insurance Information Institute
“Green” Energy Also Has Distinct
Insurance Needs
•Expensive Equipment
•CAT Exposure
•New Technology
•Liability Risks (known and unknown)
•Massive Infrastucture Investment (generation,
transmission, distribution)
•Marine Risks
•Employment Risks
Climate Change/Energy
Policy
Risks and Opportunities for Insurers Abound
30
Climate Change/Energy Policy
Source: Insurance Information Inst.
Opportunities Abound… Massive increase in energy generation capacity and
infrastructure required over next 20 years will drive demand for energy markets and related insurance products
Large investments in traditional and alternative energy Heavy investment in technology required Some insurers want to participate in “cap and trade”
…As Do Risks Concern that EPA designation of CO2 as a pollutant could
lead to litigation State GHG emission standards may vary by state, causing
confusion and litigation Political risk is high globally on global for energy issues Some calls to regulate investments of insurers
11.3
14.6
17.3
21.0
24.4
27.5
30.4
33.3
12.6
0
5
10
15
20
25
30
35
1990 1995 2000 2005 2010 2015 2020 2025 2030
World Net Effective Electric Power Generation, 1990-2030 (est.)
Source: Energy Information Administration, 2008 International Energy Outlook, Insurance Information Institute.
The current economic downturn will have little, if any, long-term impact on electric power generation
Trillions of Kilowatt Hours
US Electricity Capacity Additionsby Fuel Type, 2008-2030F
30.3
5
1.18
27.1
3
1.75
21.5
4
3.32
9.33
2.46
55.0
1
0
11.6
4
25.4
3 29.9
8
8.57
13.2
917.8
4
0
10
20
30
40
50
60
Coal Natural Gas Nuclear Renewables/Other
2008-2015 2016-2020 2021-2025 2026-2030
Energy insurance demand will rise as capacity across all
fuel types grows, led by natural gas and renewables
Gigawatts
Sources: Energy Information Administration, Annual Energy Outlook, March 2009.
Renewable growth will require new
insurance solutions
World Electricity Generation by Fuel 2005-2030F
2.63 3.
16 3.42
2
7.15
2
0.76
4
3.75
4 4.99
6
8.38
9
15.3
61
0.95
6
0
2
4
6
8
10
12
14
16
18
Liquids Nuclear Renewables Natural Gas Coal
2005 2010 2015 20202025 2030
Source: US Department of Energy Report #:DOE/EIA-0484 ( Sept. 2008); Insurance Information Institute
The sharp increase in generation and the
changing composition of fuel source will influence
insurance demand and the nature of products sold
Trillions of Kilowatt Hours
Non-Hydro Renewable Electricity Generation by Energy Source (US): 2005-2030F
0
50
100
150
200
250
300
350
400
450
2007 2010 2020 2030
MSW/LFG* Biomass Wind Solar Thermal Geothermal
Electricity generation from renewable sources is
expected to rise 315% between 2007 and 2030
requiring new property and liability insurance solutions
Billions of Kilowatt Hours
103.27
180.55
317.76
428.25
Sources: Energy Information Administration, Annual Energy Outlook, March 2009. *Municipal Solid Waste/Landfill Gas.
0
50
100
150
200
250
300
350
400
450
500
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
HydroOther Renewables
Grid Connected Electricity Generation from Renewables: 1990-2030F*
The energy insurance industry will evolve as customer needs change
Sources: Energy Information Administration, Annual Energy Outlook, March 2009; Insurance Information Institute.
Billions of Kilowatt Hours
Generation from renewables such as wind, biomass and solar could overtake hydro by 2019
Electricity Supply Infrastructure: Despite Crisis, Huge Investments Needed
Along With Insurance: 2001-2030 (Est.)
$ Billions
$1,351
$1,876
$809
$377
$744
$258
$609$783$799
$1,913
$0
$500
$1,000
$1,500
$2,000
$2,500
Eu
rop
e
No
rth
Am
eric
a
Pac
ific
Ru
ssia
Ch
ina
E.
Asi
a
S.
Asi
a
Lat
inA
mer
ica
Mid
dle
Eas
t
Afr
ica
Source: International Atomic Energy Agency , World Outlook for Electricity Investment.
Investments in electricity supply infrastructure
globally are expected to total $9.841 trillion
between 2001 and 2030
North American investment could total $1.876 trillion
36
Share of Electricity Generating Capacity Based on Nuclear by Country, 2008
76%
28% 25%20%
4%
13%15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
France Germany Japan US Canada UK Mexico
Source: International Atomic Energy Agency ; Insurance Information Institute.
104 nuclear facilities currently generate 20% of the US electricity supply. 17 companies have applied
for $122 in federal loan guarantees to build 21 new reactors. Construction
for the first 7 could begin by 2011 and come online by 2015-16
37
Growth in Global Nuclear Electricity Generation by Region, 2007—2020F
-16.1%
9.3%
49.6%78.0% 83.7% 98.4%
325.4%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
WesternEurope
NorthAmerica
EasternEurope
Far East LatinAmerica
Africa MiddleEast/South
AsiaSource: Blue Chip Economic Indicators, 3/10/09 edition.
Despite new capacity in the US, the developing world will see the
fastest growth in nuclear electricity generation because the
current capacity base is small
World Energy Supply Infrastructure Investment by Category: 2001-2030 (Est.)
Generation-New, $4,080 , 42%
Generation-Refurbished, $439 , 4%
Transmission, $1,568 , 16%
Distribution, $3,755 , 38%
Generation will account for 46% or $4.5 trillion
of all investment through 2030 to meet
rising demand. Current downturn will have no impact on long-term
global energy demand and the need to develop supply infrastructure
$ Billions
Source: International Atomic Energy Agency , World Outlook for Electricity Investment.
Natural Gas20%
Renewables18%
Liquids6%
Coal41%
Nuclear15%
2005 2030
World Electricity Generation by Fuel Source Share: 2005 vs. 2030F
Natural Gas25%
Renewables15%
Liquids2%
Coal47%
Nuclear11%
Surprisingly, coal as a source of electricity generation is
expected rise through 2030. CO2, pollution issues?
Source: Insurance Information Institute from data reported in US Department of Energy Report #:DOE/EIA-0484 ( Sept. 2008).
What Motivates Insurers to Go
Green?CATs, Demographics,
Demand
Concern Over Global Warming Remains High, But Has Waned
72% 80%
84% 85%
0
20
40
60
80
100
Mar 06 Apr 07 July 08 Now
A majority of Americans say global warming has been occurring and is a serious problem, but skepticism has grown since 2006. Possibly due to
concern being redirected to the economy.
Source: Washington Post – ABC News poll, 11/24/09
% The percentage of Americans who believe global warming is happening fell from 85% in 2006 to 72% in late 2009
Catastrophic Loss
Catastrophe Losses Trends Are Trending Adversely,
Though How Much, if Any, Is Due to Climate Change Is
Unknown
US
$bn
Annual totals Annual totals
First half-years First half-years*Losses in 2008 values
Overall losses*: Insured losses*:
Global Natural Disasters: Economic and Insured Losses:1980 – 2009:H1
As of July 2009
Source: Geo Risks Research, NatCatSERVICE © 2009 Münchener Rückversicherungs-Gesellschaft 44
Overall and insured losses (Annual totals vs. first half-years)
Insured Property Catastrophe Losses as % Net Premiums Earned, 1984–2008
0%
2%
4%
6%
8%
10%
12%
14%
16%
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
US
US average: 1984-2008
Sources: ISO, A.M. Best, Swiss Re Economic Research & Consulting; Insurance Information Institute.
US CAT losses were a record 14.4% of
net premiums earned in 2005 and
were 4 times the 1984-2008 average
of 3.6%
46
U.S. Insured Catastrophe Losses$7
.5$2
.7$4
.7$2
2.9
$5.5 $1
6.9
$8.3
$7.4
$2.6 $1
0.1
$8.3
$4.6
$26.
5$5
.9 $12.
9 $27.
5
$6.7
$26.
0$7
.5$1
00.0
$61.
9
$9.2
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*
20??
*Based on PCS data through June 30 = $7.5 billion.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Source: Property Claims Service/ISO; Insurance Information Institute
$ Billions2008 CAT losses exceeded
2006/07 combined. 2005 was by far the worst year ever for
insured catastrophe losses in the US, but the worst has yet to come.
$100 Billion CAT year is coming
eventually
46
2009 cat losses were down 29% in H1 from $10.6B in H1 2008
Top 12 Most Costly Disasters in US History, (Insured Losses, $2008)
$4.2 $5.2 $6.2 $7.3 $8.1 $8.5$11.3 $11.3 $12.5
$22.8 $23.8
$45.3
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo(1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Northridge(1994)
Ike(2008)*
9/11Attacks(2001)
Andrew(1992)
Katrina(2005)
$ B
illi
ons
*PCS estimate as of August 1, 2009.Sources: PCS; Insurance Information Institute inflation adjustments.
8 of the 12 most expensive disasters in US history have occurred since 2004;
8 of the top 12 disasters affected FL
In 2008, Ike became the 4th most expensive insurance event and 3rd most
expensive hurricane in US history arising from about 1.35 mill claims
47
Total Value of Insured Coastal Exposure (2007, $ Billions)
$2,378.9$895.1
$772.8$635.5
$479.9$224.4
$191.9$158.8$146.9$132.8
$92.5$85.6
$60.6$55.7$51.8$54.1
$14.9
$2,458.6
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
FloridaNew York
TexasMassachusetts
New JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
Source: AIR Worldwide
In 2007, Florida still ranked as the #1 most exposed state to hurricane loss,
with $2.459 trillion exposure, an increase of $522B or 27% from $1.937
trillion in 2004.
The insured value of all coastal property was $8.9 trillion in 2007, up
24% from $7.2 trillion in 2004.
$522B increase since 2004, up 27%
48
Demographics
Vulnerable Population and Property Values Are Rising
50
Population of Florida,1960—2030F
Millions
4.9526.789
9.746
12.938
28.686
23.407
19.25215.982
0
5
10
15
20
25
30
35
1960 1970 1980 1990 2000 2010F 2020F 2030F
Florida’s population will have doubled between 1980 and
2010, according to the US Census Bureau
50
Increasing coastal population and development are the principal reasons
driving higher insured catastrophe losses today, but they increase vulnerability to
climate change. State subsidies to coastal dwellers both increase vulnerability and contribute to climate change problems
Source: US Census Bureau; Insurance Information Institute.
51
Average Square Footage of New Homes in US,1973-2008
1,6
60
1,6
95
1,6
45
1,7
00
1,7
20
1,7
55
1,7
60
1,7
40
1,7
20
1,7
10
1,7
25
1,7
80
1,7
85
1,8
25
1,9
05
1,9
95
2,0
35
2,0
80
2,0
75
2,0
95
2,0
95
2,1
00
2,0
95
2,1
20
2,1
50
2,1
90
2,2
23
2,2
66
2,3
24
2,3
20
2,3
30
2,3
49
2,4
34
2,4
69
2,5
21
2,5
19
1,500
1,700
1,900
2,100
2,300
2,500
2,700
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Insurers protect homes and their owners,
irrespective of the size of their carbon footprint
Source: US Census Bureau: http://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf; Insurance Information Institute.
Size of average new homes typically falls in recessions, and periods of high energy prices
U.S. Residual Market Exposure to Loss (Billions of Dollars)
Source: PIPSO; Insurance Information Institute
$54.7
$150.0
$281.8$244.2
$292.0
$372.3$430.5
$771.9
$696.4$656.7
$221.3
$419.5
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
In the 19-year period between 1990 and 2008, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7bn in 1990 to $696.4bn in 2008.
Katrina, Rita and Wilma
4 Florida Hurricanes
Hurricane Andrew
53
Subsidized Insurance Increases Vulnerability to Climate Change
Key Impacts of Subsidized Insurance:• Encourages/Enables Development in Vulnerable and
Ecologically Sensitive Areas• Increases Vulnerability to:
Elevated frequency/severity of hurricanes and other severe storms Storm surge Beach erosion Flooding due to sea level rise
• Leads Directly to Increased GHG Emissions Due to Increased Development & Destruction of Carbon Sinks• Loss of coastal woodlands, wetlands and mangrove forests
• Increased Risk to State’s Finances• ALSO: Subsidized Insurance Distorts Real Estate Prices
• Florida’s coastal subsidies contributed to the state’s real estate bubble and therefore are partially responsible for its collapse
U.S. Residual Market Property Policies In-ForceExposure
Source: PIPSO; Insurance Information Institute
931.6
1,319.7
1,785.0
1,196.5
1,642.31,741.7
2,209.3
2,840.42,621.32,780.6
1,458.1
2,203.9
0
500
1,000
1,500
2,000
2,500
3,000
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
In the 19-year period between 1990 and 2008, total residual market policy count (FAIR & Beach/Windstorm Plans) has nearly tripled to more than 2.6
million policies
Katrina, Rita and Wilma
4 Florida Hurricanes
55
Insurance Information Institute On-Line
THANK YOU FOR YOUR TIME AND
YOUR ATTENTION!
Download at : www.iii.org/presentations
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