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 bobh@iii.org 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

55