For catastrophe insurers, who not only thrive on mega risks but also understand these risks inside out, nature has never seemed so hostile and risks so arcane. How do they cope with a world which suddenly seems so alien? Their only option is to change, and to manage the change well.

The insurers. Although opinion is sharply divided about whether the spate of natural disasters can be linked solely to
global warming, the feverish activity going on worldwide to restore order to nature shows that no one is willing to take
chances with greenhouse gas emissions. Studies the world over have established links—and these links are more than just tenuous—between greenhouse gas emissions, rising global temperatures and the increasing severity and frequency of natural catastrophes over the past two decades. And catastrophe insurers, whose business is managing mega disaster exposures, suddenly find that they first have to learn how to manage change, to cope with a world that now seems so alien to them, before they can move over to managing risks effectively. It’s not that they were not aware about the way our climate was morphing; in fact, catastrophe insurers have been talking about major climatic changes for more than 20 years now. Some of them have even got down to conducting studies on climate change and its impact, but not only has work in this area been desultory, those who have conducted these studies have been reticent about sharing the findings with others in the industry. Naturally, in the absence of systematic and adequate industry-wide brainstorming sessions, sharing of ideas, patronage from the government and most of all, valuable and adequate inputs from professionals such as geophysicists and seismologists, there has not been enough progress in the area of catastrophe modeling and other areas, although some improved models have come in over the past few years. That critical mass of involvement that insurers could have spearheaded—and largely in their own interest—was just not here.

But after the 9/11 disaster (which is a man-made catastrophe) and a spate of natural disasters that have been occurring since the early 1990s, and especially after 1998, insurers have suddenly gone into panic mode and all eyes in the insurance industry are on the emission reducing mitigation measures which have culminated in an international treaty, the Kyoto Protocol (2005). The protocol envisages a 5.2% reduction in greenhouse gas emissions by 2012, worldwide, taking 1990 levels in each member country as the base. This would apply to all member countries—although some leeway has been granted in the case of a few customized exceptions and, of course, to dissenting countries.

Insurance Chronicle Magazine, Catastrophe Insurance, Global Warming, Greenhouse Gas Emissions, Insurance Industry, Delphi Method, Game Theory, Natural Calamity Risks, Risk Management, Swiss Re, Computer-based Modeling, Risk Policyholders.