An Insurance-Led Response to Climate Change

TL;DR

This paper proposes an insurance-led approach to address climate change by increasing premiums on energy producers, recognizing carbon inheritance, and using event attribution science to phase in levies, creating a global financial response.

Contribution

It introduces a novel insurance-based mechanism for climate change mitigation that leverages premiums and event attribution to fund adaptation and incentivize emission reductions.

Findings

Insurance premiums can be adjusted to reflect climate-related risks.

Event attribution science can determine appropriate levy sizes.

Phased implementation aligns with scientific robustness.

Abstract

Climate change is widely expected to increase weather related damage and the insurance claims that result from it. This will increase insurance premiums, in a way that is independent of a customer's contribution to the causes of climate change. Insurance provides a financial mechanism that mitigates some of the consequences of climate change, allowing damage from increasingly frequent events to be repaired. We observe that the insurance industry could reclaim any increase in claims due to climate change, by increasing the insurance premiums on energy producers for example, without needing government intervention or a new tax. We argue that this insurance-led levy must acknowledge both present carbon emissions and a modern industry's carbon inheritance, that is, to recognise that fossil-fuel driven industrial growth has provided the innovations and conditions needed for modern civilisation to exist and develop. A tax or levy on energy production is one mechanism that would recognise carbon inheritance through the increased (energy) costs for manufacturing and using modern technology, and can also provide an incentive to minimise carbon emissions, through higher costs for the most polluting industries. The necessary increases in insurance premiums would initially be small, and will require an event attribution (EA) methodology to determine their size. We propose that the levies can be phased in as the science of event attribution becomes sufficiently robust for each claim type, to ultimately provide a global insurance-led response to climate change.