Know Your Rights - United Policyholders

Staying (insurance) cool in rising heat:
Risk Management for Businesses and
Cities in the face of Climate Change
Sustainable Silicon Valley Annual Meeting
Santa Clara, CA.
December 8, 2008
Amy Bach, Executive Director
About UP
United Policyholders is a not-for-profit founded in 1991 that advocates for fairness in insurance
transactions and is a help resource for commercial and individual policyholders:
Loss recovery and legal support for individuals and businesses
“Insurance Assurance” preparedness education workshops
Interfacing with elected officials and regulators
UP advances the interests of individual and business policyholders:
In regions that have been hit by natural disasters
By filing “Friend of the Court” briefs
By publishing materials in print and on line at
At the NAIC and in legislative proceedings
The organization’s work is funded by donations and grants.
UP has a large national network of volunteers and limited paid staff.
Challenges and opportunities:
The insurance industry has a uniquely high stake in the effects of
climate change:
Higher incidences of weather-related property damage claims will
reduce the insurance sector’s (formerly) extraordinary profitability
New risks that have limited data history will present pricing challenges
If the industry can’t adapt to pricing these new risks, its role and
influence will diminish
The insurance sector has the potential to make very substantial positive
contributions to solving climate change related problems
Insurers’ reactions to data and their perceptions re:
increasing risks are in play and will have a
substantial impact on all of us:
 Risks
relating to new energy technologies that
have no history present a challenge and an
opportunity for insurers
 If
insurers can’t adapt, fewer risks may be
insured through the traditional carriers
 More
“Captives”, Risk Retention Groups and
government involvement will continue to grow
(e.g. TRIA, Flood, EQ)
Insurers have clearly “noticed”:
Increasing hurricane activity and weather
related property damage claims
1,000 wildfires in California in 2008
The State of Florida is now in the
reinsurance and risk-modeling business
Insurance executives are essentially
gamblers. Underwriters like predictable
 The predictive tools the industry uses have
become more sophisticated over the years
with computerized modeling, but climate
change presents a level of unpredictability
that has been described as “ominous”.
Models and loss data that are based on
historic events have limited relevance to
the future.
Insurers’ reactions thus far:
 Increasing
rates and deductibles
 Adding exclusions
 Strategic market share reduction in regions
that have been hit repeatedly by catastrophic
 Rejected apps
 Increased
firm data
reliance on short term modeling
A sampling of insurer positions in
GHG litigation coverage disputes:
No covered “occurrence” because emissions
have long been considered a byproduct of
No coverage because damages complained of
were “in progress” prior to the effective date of
the applicable policy and are thus excluded from
Carbon dioxide and GHGs should qualify as
pollutants and thus be subject to a so-called
“total pollution exclusion” in the policy.
Policyholder counsel disagree:
Covered “occurrence” because emissions
part of normal business operations;
 Carbon Dioxide was not classified as a
pollutant at the time policies were issued,
 The release of GHGs were not regulated
emissions when policies were issued and
therefore cannot be subject to the socalled “total pollution exclusion”.
Forming a captive insurance
Somewhat analogous to medical savings
accounts but much more complex
Substantial tax advantages
$40-50 million in annual sales
Strong risk management program in place
Relatively favorable loss history
Trade assoc. or group with similar entities
Vermont Captive Insurance Association
The dynamic:
We want insurers not to stick their heads
in the sand, but we don’t want them to
Climate Change Risk Disclosure Model
The insurance industry has the power to influence
societal behavior favorably by:
Providing mitigation incentives
Managing and pricing property risks related to extreme
weather events
Continuing to create and implement new products
offering solutions for climate change-related risks
Refusing to insure development in ecologically sensitive
Focusing on underwriting third party liability claims
against heavy greenhouse gas emitting industries for the
climate change-related exposures they create
Green initiatives by insurers:
Pay as you drive
 Coverage for green building materials
 Heightened attention to mitigation and
 Renewable energy related insurance
To do:
Shop for policies that do not contain broad exclusions for events that could be
associated with climate-change.
Be prepared to retain specialized policyholder counsel to challenge claim denials that
are based on an insurers’ overly broad reading of a policy exclusion.
Investigate options:
Self-insuring for lower risk levels and purchasing high layers of coverage/gap policies where
necessary and appropriate.
Risk Retention Groups
Captive insurance companies
Aggressive mitigation/risk management.
Educate and help employees be prepared to recover from increased weather related
property damage by buying enough and the right kind of insurance on their homes.
Coverage for Climate Change: Footing the Bill for
Carbon Footprints by Michael Conley, Esq. and Meghan
Finnerty, Esq. Anderson, Kill & Olick, PC Environmental
Claims Journal, 20(4):1–7, 2008
Captive Insurance Companies: A Growing Alternative
Method of Risk Financing Journal of Payment Systems
Law (June 2007) (with Isaac E. Druker and R. Mark
Keenan) [email protected]
Amicus briefs, articles etc. at United Policyholders’
United Policyholders
Amy Bach
Executive Director
[email protected]

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