Governments juggle too many interests to drive global action on climate change. But the insurance industry is ideally placed. With annual premiums amounting to between US$4 trillion and [US]$5 trillion, or about 6% of world gross domestic product (GDP), the industry’s future profitability hinges on limiting the risks of climate change …
The costs of climate-related damage will grow as the world warms. For the United States, the impact on agriculture, crime, storms, energy, human mortality and labour will cost around 1% of GDP for each 1°C increase in global average temperature . If a similar picture holds worldwide, each 1°C rise will cause about [US]$1 trillion of extra damage per year. For present temperatures above the 1980–2010 average, this equates to about 0.4% of world GDP — damages that are growing at around 0.1–0.2% per decade [1,2] …
Two other trends add pressure. Commercial banks, investment funds, university endowments and pension funds are shifting their portfolios away from fossil fuels and towards low-carbon options. They are driven by the fear that trillions of dollars of carbon-intensive assets could be ‘stranded’ as they become unburnable . If assets lose value, so will companies and their investors, including insurance firms …
Instead, we propose a levy managed by the insurance industry to fund adaptation and the low-carbon transition (see ‘Energy levy’). Like a carbon or energy tax, it would have the advantage that the revenues go solely into adaptation and mitigation, not government or individual spending. It would have the same value internationally, be led by business and be set by an objective measure. We believe that the levy could be paid voluntarily. Large petroleum companies have called for a realistic carbon price to increase the pace of low-carbon investments; an insurance levy would be equivalent. Companies that pay up will attract good publicity and may reduce the risks of future litigation. Governments could legislate that it must be paid, as the United Kingdom has done with Flood Re ….
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