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The earth is melting: How Insurers are responding

There is hardly any other industry that is feeling global warming as directly as the insurance sector. It is responding with a double strategy: demanding compliance with the Paris climate objectives while at the same time preparing for those climate consequences that cannot be prevented any more.

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© Steffen M. Olsen

Instead of perpetual ice these sled dogs on Greenland run through meltwater

You can imagine more pleasant routes for a protest march. However, the eight men dressed in thick snow suits in the north-east of Canada wanted to take a stand. So they chose the hardest route possible: 1,000 kilometres through the pack ice to the North Pole. The spectacular expedition aimed to make the world aware of the most urgent environmental problem: the ozone hole.

„This is a wake-up call“, said polar researcher Arved Fuchs back then in March 1989 in an interview with the “Taz”. „We cannot carry on like this!“ When the men reached the Pole a good 60 days later, the media were full of reports on the expedition – and the ozone problem.

Three decades later, Fuchs’ mission is still the same. He is still fighting for the future of the planet. Only the culprit has changed. It is no longer about stopping the use of the FCKW ozone killer but rather getting the greenhouse gas CO2 under control. However, another climate protest march to the North Pole is out. Although even at 66 Fuchs would still be fit enough, the ice is too thin – he would have to swim large parts of the route.

„Even the long-term ice that used to last over the summer has gone almost completely,“ says the career adventurer who came back from a sailing expedition to the region a few months ago. „The Arctic is heating up twice as fast as the rest of the planet. It is a kind of early warning system. But we are not responding to it adequately. If we are doing anything, it’s all half-hearted.“

From „Fridays for Future“ to „Grandpas for Future“: climate protection is moving the masses

This half-heartedness is now driving people to the streets around the world. Since Swedish Greta Thunberg wrote the words “Skolstrejk för klimatet” on a cardboard sign on a Friday just under one and a half years ago and sat down in front of the parliament in Stockholm, the fight for the climate is on the way to becoming a mass movement. What used to be an issue for tree huggers or idealistic eco-crazies has reached the wider public because it is not only students who are getting involved. For some time now, “Fridays for Future” has given rise to movements in science (“Scientists for Future”), art (“Artists for Future”), seniors (“Grandpas for Future”) and other social groups. Asked about the most pressing issues of our time, Germans have been putting environmental and climate protection at the top of the list for months now – even above the refugee crisis or rising rents.

And the topic has also reached the business community, not least the insurance companies because their industry is affected by the consequences of climate change more directly than almost any other. There is a simple reason for this: just as researchers show the increase in temperatures in their climate tables, the insurers can read them in their claims statistics. Because the more the earth heats up, the greater the destruction from natural disasters. It is no wonder then that insurance companies are particularly committed to climate protection.

It would be a mistake, however, to assume a one-for-one correlation between claims and climate change because in recent decades global wealth has increased. Where a flood might have damaged a radio in the olden days, it now might wreck consumer electronics worth hundreds if not thousands of euros. And something else is driving up claims: the proportion of insured climate damage is increasing, as was explained by Ernst Rauch, Chief Climate and Geo Scientist at Munich Re. Even if you adjust the claims figures for these effects, the trend is still clear: „In spite of occasional downward swings, it’s getting more expensive. Climate change caused by people has a key influence on weather events and contributes to higher claims.”

By the middle of the century, claims could increase by 50 per cent

France’s state-run reinsurer Caisse Centrale de Réassurance (CCR) researched the effects of climate change on the insurance industry in a comprehensive study last year. It states that the industry must be prepared for up to 50% higher claims by the year 2050. 35% is due directly to climate change and 15% to the rise in urbanisation, because a higher population density also means higher claims from extreme weather events in these areas.

Oliver Hauner, Head of Property Insurance at the GDV, also points to an ironic problem. In the fight against CO2 emissions, legislators require property owners to thermally refurbish houses and flats, which actually exacerbates the damage when bad weather strikes. For example, hailstones penetrate the expensive façade insulation, and the plastic insulation panels have to be disposed of as special waste then. In addition, the severity of the damage to properties means that ever more frequently the inhabitants have to stay in a hotel during the repairs which also drives up claims levels.

Heavy rain events, in particular, have kept the insurance industry busy in recent years. Münster in 2014, Simbach and Braunsbach in 2016, Goslar and Berlin in 2017: time and again there have been storms with extreme rain leaving destruction in their wake. In a joint survey with Germany's National Meteorological Service (DWD), the GDV sought to find out what parts of the country are particularly prone to such disasters. To do so, the DWD analysed the rainfall from 2001 to 2018 and then compared it with insurance industry claims statistics.

Short but severe: bad weather events with particularly serious consequences are often highly localised

From the perspective of Andreas Becker, head of the precipitation monitoring department and the Global Precipitation Climatology Centre at the DWD, the study produced three surprising results. First, the biggest damage is not produced by long periods of bad weather when it rains for more than nine hours, but rather short and heavy rainfalls that are limited to a small area. Second, these events can occur virtually anywhere in Germany and are not related to topography. Third, a particularly high number of such events seem to be recorded during dry spells, such as most recently during the drought year 2018.

Is the frequency of such bad rain events in recent years evidence that climate change has reached Germany? DWD expert Becker’s response is cautious; the study covered a period of 18 years, and that was too short to make serious statements on changes to precipitation patterns, he says. You would need to analyse 30 or better yet 50 years. However, in contrast, the knowledge gained from climate research on the development of temperatures on Earth is well-founded. The likelihood of heatwaves in Europe has at least quintupled in comparison with the pre-industrial era.

And that is not the only alarming scientific insight which is now considered certain. The Intergovernmental Panel on Climate Change (IPCC) presented a study last year on how a world that is two degrees warmer is different from one where the temperatures increase by 1.5 degrees. A two-degree increase is the upper limit which was agreed by the global community at the 2015 Climate Conference in Paris. The fact that the final declaration mentions ideally limiting the increase to 1.5 degrees even, is thanks to pressure from countries in the south that are already feeling the significant effects of climate change.

© Julia Zimmermann/laif

Upset: In front of the Brandenburg Gate students demonstrate for
climate protection

The difference of half a degree may seem marginal but it isn‘t, as the IPCC study demonstrates. Consider heat waves, for example: with a 1.5-degree temperature increase it is expected that every other year will be as hot as 2016, the warmest year on record so far. In a world that is 2 degrees warmer, this would be nine out of ten years. Droughts in the Mediterranean are another example: they grow longer as the planet heats up; in the 1.5-degree scenario they take 2.6 to 2.8 months a year; in the 2-degree scenario they are projected to be up to 3.2 months long. However, it is not only the Mediterranean that is getting dryer. The 2018 drought made it clear that Germany will not get off scot-free, either.

Germany is a long way off reaching the climate targets – to the chagrin of industry

The list of examples goes on. They all show that, at 1.5 degrees, the consequences are tough but still manageable. At two degrees, this may no longer be the case. That makes a finding published by the „Climate Transparency“ network in the run-up to the Madrid climate summit all the more irritating. According to this finding, the top 20 economies of the world are responsible for 80% of the global greenhouse gas emissions but none of these countries are doing enough to reach the 1.5-degree target, including Germany.

In fact, Germany is far from pulling its weight. If the characteristics of a good story include unexpected twists, disasters, and cliff-hangers, the German energy policy has everything it takes to be a best-seller. At the start of the millennium, the country made international headlines with its spirited commitment to renewable energies; the term “Energiewende” even made it into the English language. However, little remains from the ambition seen back then. „We have long since become an international backmarker. Other countries are doing more for climate protection,” says economist Claudia Kemfert, energy expert at the German Institute for Economic Research (DIW) in Berlin. In most sectors, emissions have hardly fallen since 1990 and in transport they have even increased. Only the energy sector has made significant progress. But even there the prospects are bleak. While leaving coal behind is still a long way off, expanding wind power has virtually come to a stop. Germany has long since silently set aside its climate targets for 2020. Much to the chagrin of industry. Even the Federation of German Industries (BDI) is now imploring the Federal Ministry for Economic Affairs and Energy, which it is usually on friendly terms with, to be more ambitious when it comes to climate protection.


The polar bear melts away the habitat under the paws. The animals have to dodge far to the mainland, where it can come to encounters with humans

It appears that many companies have made more progress than the government. Manufacturing is adjusting its factories for efficiency, and retailers are making their supply chains greener. Even the financial services industry is developing climate plans. Although its potential for reducing CO2 directly is limited since banks and insurance companies produce comparatively low emissions, it does have a powerful lever at its disposal: the capital market. „If our world gets three to five degrees warmer, insurance is no longer possible,“ Thomas Buberl, CEO of AXA insurance, recently explained on the German radio station Deutschlandfunk. So it is in the interest of the insurance industry to lead the way in so-called divestment, i.e. switching capital from climate-damaging to climate-friendly assets. „We want to have an investment portfolio that is compatible with 1.5 degrees,“ Thomas Liesch, sustainability expert at Allianz, explained in the same editorial.

Munich-Re’s Ernst Rauch also emphasised the problem of insuring against climate risks. „Rising risks lead to rising prices; otherwise, the insurer cannot bear the risk in the long term,“ he commented in „Handelsblatt“. This could mean that at some point homeowners can no longer afford insurance for natural disasters.

This is one of the reasons why GDV expert Hauner calls for greater efforts to adapt to the consequences of climate change. He compares the situation with that of fire insurance a good 150 years ago. At that time, the ability to insure buildings reached its limits as the houses got larger and the population density higher. As a consequence, both the number of fire victims and the claims amounts in the event of a fire rose dramatically. The situation only improved with the introduction of effective fire protection regulations in construction law.

Hauner would welcome a similar adjustment to the consequences of climate change today. Homeowners could weatherproof cellar windows, light wells and skylights at low cost and avoid damage this way. At some underground stations, thresholds at street level entrances prevent rainwater from flowing down the stairs into the stations. „Why are such measures not standard everywhere? Very often, the simplest things can be highly effective“, says Hauner.

Is storing CO2 underground an instrument for climate protection?

Nobody will be able to escape the consequences of climate change in the coming years and decades. Because even if there is success in drastically reducing global greenhouse gas emissions, the weather will become more challenging in many places around the globe, as the IPCC report demonstrated. The process cannot be stopped completely.

It may, therefore, be necessary to take a third path in addition to adjusting to climate change and reducing greenhouse gases: CCS, which stands for carbon capture and storage and means filtering CO2 from the air and storing it underground. Pilot studies have already been successful, for example in Switzerland. Norway wants to store CO2 in huge quantities in depleted gas fields under the North Sea. However, the technology is not ready for the market, yet, and in Germany it is virtually banned after protests by residents. The pressure to rethink this ban in order to become greenhouse gas neutral is increasing, though. „I am firmly convinced that we can only achieve this if we are willing to store carbon dioxide,“ declared Federal Chancellor Angela Merkel in May.

Greta Thunberg would probably agree. It is she who said, „we will not save the world by playing by the rules. We need to change the rules.“

Volker Kühn