Insurers are unprepared for the costs of climate change, the top United Nations climate diplomat said as world leaders make final preparations for a deal on global warming.
The agreement, which the UN expects to seal in Paris in December, won’t solve climate change because of the greenhouse gases already in the atmosphere, UN Framework Convention on Climate Change Executive Secretary Christiana Figueres said Tuesday in a speech at the Association of British Insurers in London.
That means businesses, including insurers, should expect the planet to continue to heat up, which will affect commerce around the world.
“This system is already overloaded and from an insurance perspective, I would say, all alarm bells are ringing,” Figueres said. “The insurance sector is perhaps ready for some natural disasters, but it it’s not ready for climate change, which is a systemic threat.”
Insurance companies are paying close attention to climate change, and recognizes that it’s in their interest to address the threat, said Matt Cullen, ABI’s head of strategy.
“The increased frequency and severity of major weather events means increased risks and costs,” Cullen said in an e- mailed statement. “But insurers also have another critical role to play: helping to support the transition to a low carbon world through responsible investments and in how they price risks associated with renewable energy and energy efficient homes.”
Figueres’s warning follows a similar one by Bank of England Governor Mark Carney who said last month that investors need to wake up to the potential dangers that will be triggered by rising temperatures.
Insurers have already begun to take notice of the effects that climate change, and regulations designed to curb it, may have on payouts and investments. Aviva Plc in July vowed to embed “carbon risk” in its investment decisions, while stepping up exposure to renewables. Allianz SE and AXA SA have also increased investments in low-carbon assets.
The deal being brokered by more than 190 nations would for the first time limit emissions in all countries, and Figueres said cities, regions, corporations and individuals will all have a role to play.
At the same time, she reiterated a message she’s said several times in the run-up to Paris: that the new deal won’t put the planet on a pathway to limit warming since pre-industrial times to 2 degrees Celsius (3.6 degrees Fahrenheit). Instead, she said, it will need to include the tools to ratchet up emissions cuts in the future.
“What we will do in Paris is begin to manage the risks of completely unmanageable climate change.,” Figueres said. “We’re going to try to contain the damage, contain the threat and in the best of all cases, turn it into a huge opportunity.”
The event at the ABI was organized by the Institute for Public Policy Research, a policy analysis firm based in London.
Copyright 2015 Bloomberg.