SIRM delegates told don’t ignore climate change

The Swiss should have a natural feeling for all climate issues. Visitors to the famous Gletschergarten Glacier Garden in Lucerne, a museum of the early history of Switzerland, can see and feel the ‘Millions-of-Years’ show. It demonstrates that the country was covered by ice 20,000 years ago. However, 20 million years before that, it was a tropical landscape with palm trees, tropical mammals and beaches, all displayed in loving detail by the museum. This considerable difference in living conditions was caused by a temperature difference of just six degrees celsius.

It thus comes as a surprise that the country and its businesses find it hugely difficult to even discuss a strategy about how to cope with present-day changes in climate.

There is strong conservative opposition to the view shared by the majority of scientists that global warming is the result of human action. As global warming is seen as a political issue, some companies do nothing and believe or hope that the ‘hoax’ will go away.

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For that very reason, global warming was the key subject at the annual meeting of the Swiss Association of Insurance and Risk Managers [SIRM] in Pfäffikon last month.

Close to 140 risk managers, brokers and insurers discussed the topic ‘Climate change—economic change,’ while trying to find answers about how to react to the threats posed by climate change.

Andreas Fischlin, professor at the Center for Climate Systems Modelling at the Swiss Federal Institute of Technology, Zurich, called on risk managers to accept that climate change is real. “Stop dismissing global warming,” he cautioned, pointing to the political discussion over climate change.

Large parts of the Swiss population still believe that serious scientists dispute the existence of climate change. “That is not true,” Mr Fischlin said. “We all agree that climate change is a fact, and we all agree that we can avert even worse catastrophes.”

Located in the Alps, Switzerland is threatened by the effects more than other industrial nations. Melting glaciers, frequent avalanches of debris and strong floods are part of everyday life. In some regions the impact of global warming has even become a tourist attraction, as in the Bernese Oberland, where tourists can visit the vanishing glacier Grindelwaldgletscher.

Taking the fact of global warming as a common denominator, participants discussed how to insure companies against the effects of global warming, and the possible limits for insurance companies.

“Climate change is an issue we will have to deal with even more during the next five years,” said SIRM President Dieter Berger, who also heads the insurance department at Swiss power supplier Alpiq. “That is why we chose this topic for our annual meeting.”

One of the main questions was whether companies should invest in prevention plus insurance cover, which could mean not paying a dividend to the shareholders.

STILL SCEPTICAL

Speakers agreed that most Swiss companies do not tap the full potential of climate-change-based risk management. “This is because of the silly discussion about whether climate change exists or not,” said Mr Fischlin. “This makes risk managers feel insecure and reluctant about whether to invest in measures at all.”

Inspired by a presentation by Pierre Lauquin, risk manager at food company Nestle, Mr Berger suggested that companies perhaps should consider installing a separate long-term risk manager, who does not have to attend to routine business like buying insurance. His or her only job would be to look after long-term programmes such as the implementation of sustainable methods of production.

“Some of the potential questions include manufacturing plants located in flood-prone areas or whether to cultivate agricultural products in areas threatened by droughts,” Mr Berger said. “We should all start to think now about the difficulties our companies will have to deal with in a few decades.”

Mr Berger is reluctant, however, to reveal what his own company Alpiq is undertaking to protect itself from losses that result from extreme weather phenomena. “It is evident that, as a power supplier, we are worried about renewable energy,” he said. “Of course we are not at ease when it comes to the question of whether we still have enough resources like gas or water to operate our power plants.”

Because climate change and global warming are not gradual processes but fast-developing phenomena, reinsurers at the SIRM conference told industrial companies to adapt their risk management strategies.

One of the most important goals for the industry is to find the appropriate mixture between risk management and risk transfer, said Andreas Spiegel, Senior Climate Change Advisor at Swiss Re.

“Since we do not expect any regulatory measures like the Kyoto Protocol in the near future, companies have to react to the threats of global warming themselves,” he said.

Even small measures could help the industry prevent high losses. “One possibility would be to use special plastic material instead of glass in windows or glass rooftops to prevent hail losses,” suggested Mr Spiegel.

“Our advice is to buy insurance cover for rare and extreme catastrophes and to take measures against regular losses like floods in flood prone areas,” he added.

In Mr Spiegel’s experience risks are chang-ing at a fast pace. To prevent some of them from becoming uninsurable, companies should react soon. Some manufacturing firms have already reached their limit as regards buying insurance cover and in some endangered regions premiums continue to rise exponentially.

Markus Nöthiger, partner of consultant company PricewaterhouseCoopers Switzerland, also believes that in future some of the risks resulting from climate change will no longer be insurable.

“For companies climate change means first and foremost the challenge of developing new approaches, processes and technologies,” he said. “If we do not want to exceed a global warming of two degrees celsius, there will be enormous changes that the manufacturing industry needs to undergo—and some companies will not survive if they do not adapt early enough,“ continuned Mr Nöthiger. In some areas this conversion had already started.

IDENTIFY RISKS

“First of all, risk managers need to identify what the risk exposure to climate change is—is it physical risk, a compliance risk or a risk that consumers will not buy certain products anymore. Then risk managers should also identify where future exclusions of insurance coverage might be, which risks are already no longer insurable and where they could become uninsurable because of, for example, an accumulation of extreme weather phenomena,” Mr Nöthiger said.

“One answer could be to adapt by shifting some operations in endangered areas,” he continued.

“In the manufacturing industry, for example, they will have to weigh up whether it is cheaper to invest in measures to reduce carbon dioxide emissions or to buy additional emission trading certificates,” he said.

Mr Nöthiger called for a more strategic approach to global warming in companies. In his view there is still not enough risk awareness when companies deal with climate risks. “There are only some isolated approaches to measure and reduce carbon dioxide here or to install climate-friendly methods of production there,” he said.

“These piecemeal tactics will not lead to sufficient results. We should realise that the costs of long-term investments will be much lower than those we are going to face, when we learn the serious effects of global warming the hard way in the years ahead,” concluded Mr Nöthiger.