Lloyd's of London and other insurers have now called for collective action to address climate change following a speech by Bank of England Governor Mark Carney, the former head of the Bank of Canada. He outlined the looming crisis that phenomenon represents for P&C insurers. In addressing the group Tuesday.
The insurance leaders, including Lloyd's CEO, Inga Beale, and RSA’s CEO Stephen Hester, have sent an open letter to Carney, pointing to the need for a regulatory environment that "allows the industry to fulfill its “full potential as society's risk manager and to help maintain risk exposure within insurable levels."
Carney had argued that along with physical and liability risks, insurers face threats from the re-pricing of investments in fossil fuels in the move toward a lower carbon economy.
“The exposure of U.K. investors, including insurance companies, to these shifts is potentially huge,” Carney said, noting research suggesting current modeling in the industry may be under-pricing risk by 50 percent if current weather trends become normal.
The key danger is that changes in policy leave oil drillers and coal miners with stranded assets -- reserves that have little value because the fight against climate change will require them to be left in the ground. While disputed by energy companies, the issue has been gaining attention in the past year and is a focal point for a round of United Nations talks on global warming due to culminate in December.
At most, just over a quarter of fossil-fuel reserves can be used if warming is to be limited to 2 degrees Celsius above pre- industrial levels, scientists convened by the UN have concluded. The so-called carbon budget compatible with the 2-degree goal goal would be used up in about two decades at current levels of fossil-fuel consumption.
