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US Insurer Introduces Climate Change Program

19 May 2006

American International Group (AIG) has become the first major US insurer to publish a climate change policy and program.

The statement, available on the company’s website, acknowledges the reality of climate change as a significant problem, and outlines the various initiatives and approaches the company is taking to respond.

Climate change is increasingly recognized as an ongoing, significant global environmental problem with potential risks to the global economy and ecology, and to human health and wellbeing.

AIG recognizes the scientific consensus that climate change is a reality and is likely in large part the result of human activities that have led to increasing concentrations of greenhouse gases in the earth’s atmosphere. At the same time, market-based environmental policies and potential new investments provide business opportunities for AIG to address the problem. We will pursue these new opportunities where we have the expertise and capacity to do so in ways that mutually benefit AIG, its shareholders, employees, customers, and the global community.

AIG will continue to dedicate resources to the development of market-based solutions that address climate change. AIG is exploring an investment strategy, for example, to leverage both the financial value derived from reducing greenhouse gas emissions and other incentives for lower emissions and to develop products and services that facilitate emissions reductions for clients and support the emerging market for tradable carbon credits. These and other new opportunities are emerging in insurance underwriting as well as in investments, risk management, consulting and financial products.

—from AIG policy statement

Among the various initiatives currently underway are:

  • Investment. AIG Global Investment Group will allocate additional private equity investments to projects, technologies or other assets that contribute to greenhouse gas (GHG) emission mitigation. This allocation will add to investments that have already been made in these areas.

    AIG will invest in the development and acquisition of buildings that conform to the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) standards or equivalent local standards that emphasize cutting-edge efficiency and clean energy technologies.

    AIG Global Investment Group recently became an institutional investor signatory to the request for information on the fourth Carbon Disclosure Project (CDP), a global non-profit forum for institutional investor collaboration on the business implications of climate change and related effects on their investments.

    AIG Global Investment Group is also evaluating the development of a new investment product that includes climate change and GHG related criteria.

  • Financial products. AIG’s Capital Markets operations is preparing a business plan to participate in GHG trading of compliance instruments within the European Union’s emissions trading system. Under consideration are:

    • Developing Clean Development Mechanism (CDM) and Joint Implementation (JI) projects in developing countries and economies in transition;
    • Developing risk management/derivative products to support the carbon market, including serving as an intermediary for risk transfer;
    • Adding carbon credits to the Dow Jones-AIG Commodity Index; and
    • Providing brokerage and GHG management services to AIG companies’s clients that have compliance obligations.

  • Insurance. In addition to ongoing work in environmental remediation and liability insurance, AIG divisions are:

    • Customizing, bundling and/or targeting existing products for developers of renewable energy (e.g. wind, biomass, solar), other mitigation technologies and projects that generate carbon credits within the EU and other emissions trading systems; and
    • Developing new products to insure against the failure of a project to generate tradable carbon reductions.

  • Consulting. AIG is marketing to its refining, petrochemical and power sector clients a program to identify energy efficiency improvements that translate directly into carbon reductions, including supporting the registration process for CDM and JI projects, exploring funding options and assisting with the sale of carbon credits.

AIG has established an Office of Environment and Climate Change to be the focal point on these efforts.

AIG companies continually factor in changes in climate and weather patterns as an integral part of its underwriting process—a systematic approach to measuring weather risk that includes, among other methods, sophisticated catastrophe exposure modeling. The underwriting process constantly recalculates and revalues risks for our clients, and adjusts coverages and rates accordingly, while simultaneously managing our exposures. We do this to provide the best possible risk management services to our clients while protecting long-term shareholder value. Perhaps no other industry responds as quickly to changes in climate patterns as the insurance industry.

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May 19, 2006 in Climate Change | Permalink | Comments (3) | TrackBack (0)

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Comments

This is exciting - kudos to AIG! Is it possible that someday the MAJORITY of Americans will sacrifice inconspicuous consumption for the future of the planet?

Darn, I was hoping this would mean lower insurance rate for ULEV/PZEV vehicles. :P

AIG is an insurance company. Climate-related risks are becoming too high for the sector to cover in many parts of the US and elesewehre. That means insurance cpompanies are overexposed on the policies they already hold on the one hand and, losing out on new customers looking for affordable premiums for new policies on the other.

Investing in climate change mitigation is therefore simply a sensible if long term business proposition. It needs to be accompanied by a political will to apply damage limitation strategies in the first place.

For example, IMHO it makes no sense to rebuild New Orleans in the same location unless updated building codes require all new construction to be flood and storm tolerant: mandatory emergency living quarters well above the top of the levees, reinforced roofing construction, escape hatch in roof with firemen's lock, easements for elevated sidewalks on top of fixed-height garages etc.

All that will cost homeowners a lot of money and significantly change the look of the city. Indeed, it may not be affordable at all. Still, without structural mitigation efforts, insurance cannot be offered at reasonable prices.

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