{"id":8831,"date":"2016-11-03T18:42:11","date_gmt":"2016-11-03T22:42:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/if-storms-are-getting-worse-who-pays-first-travelers\/"},"modified":"2016-11-03T18:47:23","modified_gmt":"2016-11-03T22:47:23","slug":"travelers-insurance-if-storms-are-getting-worse-who-pays-first","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/travelers-insurance-if-storms-are-getting-worse-who-pays-first\/","title":{"rendered":"Travelers Insurance: If storms are getting worse, who pays first?"},"content":{"rendered":"

Climate change is scary and expensive for Travelers:<\/u><\/strong><\/p>\n

Who is there to foot the bill after catastrophic events like 9\/11, Hurricane Katrina, and Hurricane Sandy? While communities, individuals, governments, and businesses are impacted by these events, insurance companies specifically are liable to cover the losses from these events related to the property that they insured. By their nature, insurance companies are directly impacted by weather patterns caused by climate change. Further, given the critical importance of insurance industries to economic development, the risks caused by climate change that insurance companies face should concern us all.<\/p>\n

Travelers Companies (“Travelers” or the “Company”) is a property and casualty (P&C) insurance company that offers a wide range of insurance products, but has significant exposure to property insurance related to protection against losses from hurricanes, earthquakes windstorms, tornadoes, floods, etc. Specifically, the Company is exposed to risk related to catastrophic storms.<\/p>\n

As a P&C insurance company, Travelers\u2019 operating and financial models are affected by climate change in several ways. First, as climate and weather patterns become more unpredictable, it makes evaluating risk related to potential loss from storms and weather more difficult. For example, clients may have more claims than Travelers expected because of more frequent or more severe events such as snow, ice, hurricanes, droughts, typhoons, or extreme precipitation. Second, as Travelers has more difficulty properly assessing potential risk, the Company becomes a more risky counter-party. As a result, Travelers\u2019 cost of reinsurance (what Travelers pays to have their losses insured) and cost of capital would both increase. In addition to claims, these are two of the largest costs to Travelers\u2019 business. Third, regulation related to mitigating climate change increases the cost of doing business for Travelers\u2019 clients. As a result, clients have less cash to invest in insurance protection, which decreases demand for Travelers products.<\/p>\n

\u2026 so they are making an effort\u2026<\/u><\/strong><\/p>\n

Travelers is making an effort to deal with the unpredictability that climate change has brought to insurance underwriting and has also started sustainability programs to help potentially deal with climate change directly.<\/p>\n

Travelers has established an \u201cEmerging Issues Committee\u201d and a \u201cCommittee on Climate, Energy and Environment\u201d. These committees advise Travelers\u2019 underwriting functions to evaluate the risks related to climate change. If these committees didn\u2019t exist, then the Company may face challenges effectively assessing risks related to climate change.<\/p>\n

Additionally, Travelers responds to external climate change initiatives such as CERES (non-profit advocating for sustainability leadership) and the Carbon Disclosure Project. Further, Travelers offers a 10% discount on auto insurance for drivers of electric and hybrid cars. These environmentally responsible efforts are steps that Travelers has taken to make a positive impact on climate change. As a result of these efforts, Travelers has been named part of Dow Jones Sustainability Index, for the last ten years. The Company is one of only three property and casualty insurers in the 146 company index.<\/p>\n

\u2026 but they can do more<\/u><\/strong><\/p>\n

Ceres proposes that insurance companies take more drastic measures to treat climate change as a corporate strategic issue. Ceres suggests that insurance companies formalize their strategies for addressing climate change and create a public corporate policy statement.<\/p>\n

Additionally, Travelers could support funding research and development for climate related research. This research could be used to better inform Travelers catastrophe models so the Company could better predict the potential effects of catastrophic weather events. Additionally, the research could be used to inform the business community of the risks related to climate change.<\/p>\n

Finally, Travelers could create insurance products that promote sustainable and environmentally responsible behavior. For example, Travelers could make a special effort to insure sustainable energy projects. By providing financial support for these projects, Travelers would be encouraging businesses to pursue initiatives that produce few to no emissions. This would be an innovative step, which could mitigate climate change risks, better protect their clients\u2019 property, and benefit Travelers\u2019 financially. (646 words)<\/em><\/p>\n

\"Company<\/a>
Company Logo.\u00a0Google Images.<\/em><\/figcaption><\/figure>\n
\"Commercial<\/a>
Commercial Property Damage. Google Images.<\/em><\/figcaption><\/figure>\n

\"a3\"<\/a><\/em><\/p>\n

Personal Property Damage. Google Images.<\/em><\/p>\n

\"Storm.<\/a>
Severe Storm. Google Images.<\/em><\/figcaption><\/figure>\n

Sources:<\/u><\/strong><\/p>\n