Elayne Grace
Sustainability Research Manager
Insurance Australia Group
1

1.
Climate Change
2.
Why climate change is important to insurers ?
3.
IAG’s response
4.
Creating change together

Global temperatures have increased
Global temperatures – difference from 1961-90 average
1990’s the warmest
Decade
Warmest years
1998 and
2001 - 2003

Rainfall in most populated areas decreased

Heating up...
Estimates range between 1- 6 degree global temperature increases by
2080

Global warming caused by increased greenhouse gas emissions
• Warming trend in Australia cannot be explained by natural climate variability alone
• Science is well established and widely accepted
• Greenhouse gas increases are due mainly to burning of fossil fuels for electricity and transportation

How do we reduce the threat ?
•
We need to reduce carbon dioxide emissions by encouraging a less carbon intensive economy
GHG emissions are a fundamental by-product of economic activity
Australian GHG emissions by sector
(2002)
Waste
Land use & f orestry
Agriculture
Stationary energy
• How do we reduce GHG emissions with the minimum impact on economic activity?
Industrial processes
Fugitive
Transport

So why is an insurance company interested?
• Insurance spreads cost of risk across community
• If frequency or severity of claims increases insurers have to increase premiums and/or mitigate risk to stay viable
Climate change is expected to increase claims frequency and/or severity of extreme weather events !

Weather and climate are core business
Top 20 Insurance Disasters at January 2004
2,500
'99
2,000
'98
50% of events are hailstorms
All weather related except
Newcastle earthquake
1,500
'74
1,000
'90
'74
'85 '83 '03 '91
500
'86 '73 '71
'84 '76 '92 '67 '74
'74
'96 '03
-
Ne w cas e y,
N
T il c
Syd Hail hq uak tle
Eart
Cyclo
Syd Hail a,
Qld ane
Ha day
, Vi ne Trac
Cyclo nes ne Wand
Brisb
Ash Wed
Ca nber ra Bu shfi re
Syd S tor m
Cyclo
Cyclo e tor m adg , Qld ne A lthea
Flood
NSW
Ha il
NSW
Syd S
Bush fire
, Tas
Syd Fl ood
Ha il
NSW
M elb.
Ha il

28/10/1995
21/1/1991
14/4/1999
3/10/1986
18/3/1990
Sydney,
Australia

Top 10 Insured losses worldwide
(In US$ m at 2001 prices)
Source: Swiss Re

Why are Economic & Insured Losses still rising?
(adjusted to present day $)
Climate change-driven natural disasters are forecasted to cost the world's financial centers as much as $150 billion per year within the next
10 years, according the
UN Environment
Program's (UNEP) finance initiative report.
Source: Munich Re

What reinsurer’s are saying?
“A survey of the years 1950/2003 reveals a massive increase in major weather-related natural catastrophes during that time.
Between 1994 and 2003 there were almost 3 times as many weather-related natural catastrophes as in the 1960s .
Economic losses increased by a factor of 5.3 in the same period, insured losses by a factor of no less than 9.6.
The main causes in both cases were floods & windstorms.”
Munich Re.
“There is a danger that human intervention will accelerate and intensify natural climate changes to such a point that it will become impossible to adapt our socioeconomic systems in time.”
Swiss Re.

Small changes in mean climate can increase hazards dramatically
Hazard
Cyclone
Bushfire
Change in climate
2.2

C mean temperature
Resulting change in hazard
Increase of 5-10% in Cyclone wind speeds
1

C mean summer temperature increase
1.3

C maximum
17-28% increase bushfires
Floods
Source: Mills et al(2001)
25% increase in 30 minute precipitation
1 in 100 yr Flood becomes
1 in 17 yr Flood

Small changes in hazard intensity can lead to multiple increases in damages
700
600
500
400
25% increase in peak gust causes 650% increase in building damages
300
200
100
0
Under 20 knots 20-40 knots 40-50 knots
NSW, NRMA Building Insurance only
50-60 knots
Source: Sydney Morning Herald 25 th August 2003

Australia: Highest emissions per capita &
3% of industrialised countries
Total GHG Emission comparison
(MT CO
2 –e
) Peaks at
6098 Mt
1400
1200
1000
800
600
400
200
0
30
25
20
15
10
5
0
Highest per capita emissions
Per capita emissions comparison
( T CO
2 per person)
3% of Annex 1 emissions.
Higher than France & Italy
(1/3rd population)
Source: Australia Institute

IAG’s approach
1 Internal
Researching climate change, reducing IAG’s environmental footprint, driving cultural change
2 Supply chain
Helping to make our suppliers/ supply chains cleaner and safer
– over 11,000 suppliers (smash repair, building, white good procurement)
3 Customers & community
Sharing knowledge with our customers & working with our community – over 4 million customers

Researching climate change
TC “Dinah” Jan – Feb 1967
920
910
900
890
880
870
860
850
840
Qld TCs: Extreme Events
GHG Extreme
No GHG Extreme
Intensity increases as pressure falls
Decade

Reducing IAG’s environmental footprint
Benefits
Reducing our footprint reduces operational costs
•
•
•
2005 target reductions:
Electricity
Paper
Air Travel & Fuel
10%
15%
5%
•
•
•
Approaches include:
Lighter weight paper in policy booklets
Video conferencing, ‘think before you print’
Purchase of Green energy ,”Hybrid” vehicles
IAG Sustainability report
2004

Suppliers: smash repair industry
Encouraging safer and cleaner production and waste management
• Recycling bumper bars
• Waste strategy for suppliers
• Insurance premium discount for ‘Preferred Smash
Repairers’

Understanding building vulnerability
Are current building codes adequate now and in the future?
Storm Research
 Susceptibility of buildings/materials to storm damage
 Identify ways to encourage more sustainable material use

Hail Gun: Roof material breaking point
Roof material
Corrugated steel sheets
Concrete tiles (new)
Terracotta tiles (new)
Old slate (100 years old)
Old terracotta (50 years old)
What size hailstone caused roof to crack?
10cm in diameter
7cm in diameter
7cm in diameter
5cm in diameter
5cm in diameter

Working with communities on flood mitigation
Two 100 year events in 2 yrs
Flood research
Claims cost: NZ flood
2004 NZ$ 112m
2002 NZ$ 22m
Flood mitigation work
•Planning / building controls
•River and catchment management
•Engineering works
NZ Thames Coromandel
Coast
Flood regions

Sharing knowledge with our customers
•
•
•
•
Home help
Designing & building tips
Emergency disaster safety tips
White good profiler
Energy & water saving tips
•
Greensafe car profiler
Rating cars by environmental
& safety performance
In collaboration with NSW EPA

A way forward for Australia
1.
Set a national target of 60% reduction in GHG emissions by 2050
• Long term vision to encourage energy conservation and cleaner technologies
2.
Implement a national emissions trading scheme by 2007
• Trading schemes successful & encourages lowest cost responses

3.
Encourage all Australians to take responsibility for emissions
• Educate and inform the community about actions they can take
4.
Adapt to a new climate now
• Increase water conservation and reuse, Improve building codes, More drought resilient farming practices
5.
Develop and encourage unprecedented new business opportunities
• Energy efficient and less carbon intensive products & processes
6. Show international leadership – it can make a difference !
• Positioning for new markets, Provide example for others, export opportunities
Climate Change - Solutions for Australia
The Australian Climate Group

Business case for dealing with climate change
• 1,300 experts in 95 countries looked at the state of the environment and found
2/3rds of the ecosystems were being degraded or used unsustainably – UN’s millennium ecological assessment
• We are currently treating the earth as a business in liquidation – it’s not on anyone’s balance sheet
Business case

Financial improvement through reduced costs
 Risk reduction
 Attraction of best talent

Encourages creativity by rethinking the way things are done

Interesting business examples
• Carbon disclosure project, representing over $10 trillion asks the
Fortune 500 CEO’s what their carbon liability is?
• BP saved $650 million over 3 years from estimated outlay of $20 million.
Absolute reductions in emissions of 18% between 1998 & 2001
• DuPont has had a 67% reduction in GHG emissions since 1990. $2 billion saved through energy efficiency
• Panama Canal – use financial markets to pay for reforestation

Conclusions
1.
Climate change is here and now!
 Small changes in climate can increase damage dramatically
2.
Greenhouse gas reductions needed urgently to mitigate threat
 Long term reduction target & Carbon Emission Trading Scheme needed
3.
Reducing GHG emissions can bring financial and economic benefit
4.
IAG playing active role in bringing others on the journey but only on start of very long journey

WE ONLY HAVE 1
OF THESE...
Thank you -
For further information please contact:
Elayne.grace@iag.com.au