18. Learning Adaptation: Climate-Related Risk Management in the Insurance Industry

Insurance is a prominent, well-established mechanism for risk transfer in developed countries. While North American governments have stalled on both mitigation of and adaptation to climate change, the insurance industry (globally and in North America) is already viewing recent catastrophic events as being partially climate change related and exploring new adaptation initiatives. In general, the intent of these initiatives is to assure the prosperity of the insurance sector, not to prevent damage to life and property. Reliance by insurers on predictive risk modeling continues to be limited, as new initiatives are prompted by extreme events rather than modeled projections of damage. As another example of reactive behavior, insurers rely on legal judgments to determine the extent of their liabilities. This pattern of learning and response has two implications. First, opportunities for anticipatory adaptation prompted by insurer initiatives are very limited, which guarantees continued large losses from extreme events into the future. Second, proactive risk mitigation will have to be pursued and implemented on behalf of public welfare by the relevant branches of government and cannot be left to market forces.