Health and Life Insurers Grapple With Climate Effects. By EVAN LEHMANN of ClimateWire Published: March 10, 2010

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1 Professor Chandler was quoted in an article in the New York Times Energy & Environment section concerning how health and life insurers are dealing with the effects of climate change. Health and Life Insurers Grapple With Climate Effects By EVAN LEHMANN of ClimateWire Published: March 10, 2010 Biting bugs are buzzing northward and asthma has spread like a dust cloud, but there are deep divisions about how concerned health and life insurers should be about disease and death caused by climate change. So far, this corner of the massive industry has remained in the background of its climate debate, letting its counterparts who specialize in property losses worry in public forums about potential risks from rising sea levels and more powerful storms. But there can be storms inside the human body, as well, scientists say, pointing to increases in malaria, heat waves, lung illnesses and other diseases spread by insects that are expanding into new territory as temperate climates experience warmer winters that are less likely to kill them. The insects' spread could be a signal of new risks that are coming, says Paul Epstein, a doctor at Harvard Medical School who studies the health effects of rising greenhouse gas emissions. "Beetles, stinging insects, mosquitoes are all responding much faster [than expected]. That's the kind of leading indicator in terms of health costs that should be looked at by the health insurers," he said. "The life and health folks have really not taken this seriously yet." That is perhaps not surprising. Yes, people are already dying from the byproducts of warming, according to the World Health Organization and other scientists. But most of those deaths are occurring in Africa and other developing areas of the world, where insurance protection is a rarity. Malaria, for example, sickens hundreds of millions of people annually through mosquito bites and kills perhaps 3 million of the afflicted. More downpours, extreme storms, and higher

2 temperatures could double the disease's presence over the next century, the Intergovernmental Panel on Climate Change estimates. Climate effects 'impossible' to forecast Still, the climate is just one piece in the complex puzzle of people's health. Medicine, education, wealth and other factors all make a difference. "The number of factors that affect mortality is virtually infinite," said Robert Hartwig, chief economist and president of the Insurance Information Institute, an industry group. "To be expected to be able to isolate what the impact of climate change over the next several decades will be is virtually impossible." Yet insurance regulators are expecting answers, and soon. Large insurance companies are under the climate spotlight for the first time as new rules requiring them to disclose their efforts to understand and address the financial exposures they may have to global warming are arriving now. Companies that earn at least $500 million in annual premium have to provide answers to a dozen climate-related questions by May 1. The "climate risk survey" asks about the companies' carbon footprints, what they're doing to encourage customers to reduce emissions and if they consider climate risks when pouring billions of dollars into stocks and bonds. Health and life insurance associations argued during the process of drafting the survey that they should be exempt, suggesting that climate was a problem for their colleagues who write property insurance. "The impact of climate change on health insurance operations... is just as likely to be positive as it is to be negative," Randi Reichel of America's Health Insurance Plans, a major trade group, wrote in a letter to regulators 15 months ago. Warmer winters, for example, might cause fewer deaths or illnesses related to the cold. AHIP and the American Council of Life Insurers expressed support for the final draft of the survey, though they maintain that some member companies won't be able to provide meaningful answers to some of the questions, which the groups say aren't all applicable to health and life insurers. Not worth the effort? That was evident when three health insurers agreed to provide sample answers to the survey late last year. There is such sensitivity around disclosing information related to the politicized issue

3 of climate change that the companies agreed to provide the test answers anonymously. Not even regulators know their identities. "The Company has not adopted specific practices to identify climate change-related risks," one company answered. Another took an honest stab at regulators' questions around what the industry is doing to encourage its customers to reduce emissions. Efforts to measure the effects of climate change on health care services would be "highly speculative and unlikely to be credible," the company answered, adding that "it would not be a worthwhile use of Company resources" to embark on that effort. Regarding climate-caused illnesses, one of the companies described those effects as being one among many factors influencing wellness, and rising insurance costs, over a long period of time. "As such, any impact of climate change on policyholder morbidity would implicitly be considered in the Company's normal pricing & underwriting process," it answered. Joel Ario, chairman of the National Association of Insurance Commissioners' climate change task force, which developed the survey, said it's natural that property insurers are farther ahead in understanding climate risks. "If you get into mortality -- life insurance -- or morbidity -- health [insurance] -- it's harder to pinpoint exactly how those risks will come," Ario, the insurance commissioner in Pennsylvania, said in a recent interview. "It's not surprising to me that those are less developed areas." Insurers not 'rattled' by rising asthma costs Unlike property insurers, which have seen their exposure to loss skyrocket over several decades, as more hurricanes strike rapidly developing coastal areas, health and life insurers have not been hit by surprise losses. Even asthma, which has doubled in the last generation and now costs about $18 billion annually in treatment and lost productivity, has not prompted major concern among insurers, says Epstein, the Harvard doctor. "Some of the more than doubling of asthma over the last several decades can be attributed to burning fossil fuels and climate change," he said. "But again, that's not a huge expense. It's

4 significant. But in the scheme of things, it's not something that has rattled the health and life insurers." Epstein believes insurers need to learn more about climate change, so they can contribute more to understanding its potential effects. Take West Nile virus. The mosquito-transmitted disease appeared suddenly in the United States in 1999, when it killed seven people in New York City's Queens borough. Outbreaks continued, and by 2004, thousands of people had been afflicted with encephalitis, a nervous system disorder. Hundreds died. A report sponsored by Swiss Re, a reinsurance company, the U.N. Development Programme and Harvard pointed to drought as a common thread in West Nile outbreaks in Europe and the United States, meaning that climate change could potentially enhance its presence. But it barely made a blip with insurers when it arrived unexpectedly in the United States. "Did a number of people die? The answer is yes. Did it have any measurable impact on mortality trends? The answer is no," said Hartwig of the Insurance Information Institute. "Insurers are thinking about everything," he added. "If it were the fact that typhoid and malaria were spreading like wild out of the tropics into southern Europe or into the southern United States, then believe me, life insurers would be paying attention to that. You wouldn't have to tell them to be paying attention." Should insurers be asked to help society? But regulators and climate advocates aren't so sure. It's not just death and sickness that insurers should be concentrating on, they say. Investments could also be at risk. Seth Chandler, an insurance law professor at the University of Houston, says life insurers are expert at predicting death rates, and how that will affect their revenue. They can adjust their premiums to stay profitable. But investments are trickier. "I can't think of a life insurer in the U.S. in the past 100 years -- I mean there probably is one somewhere -- who's failed because their mortality experience was vastly different than what they predicted," Chandler said. "On the other hand, there have been plenty of life insurers that have failed because their investment risk was vastly different than they anticipated."

5 How that corresponds to climate change can be tricky to calculate. Some say it's impossible. But others believe that insurers can apply their vast wealth to promote healthy behavior -- something that can benefit both their bottom line and society. Many insurance companies have substantial investments in buildings and real estate developments. "The life sector has very long-lived investments, very significant investments," said Sharlene Leurig, who manages the insurance program at Ceres, a group of institutional investors that helped develop the climate survey. "They can play a really important role in trying to transform our economy into one that's low carbon and also healthier for populations." Putting cash into clean forms of transportation can reduce asthma and allergy effects, she said, while other investments could promote exercise to diminish obesity.