Business Response to Climate Change - Term Paper Example

Business Response to Climate Change and Section # of For some time now, business community has been well aware of the associated risks and opportunities of green house gas mitigation and policies for current and future climate change. For the reduction of emissions of greenhouse gas, many businesses have taken up voluntarily steps. Some of the climate impacts have been taken into account by many businesses which may include the federal regulation, potential state, perceptions of shareholders and probable changes in supplier and consumer markets, for instance, comparing the cost of doing business now and business in future. However, the physical impact of climate change and opportunities and risk associated with it are incorporated by fewer businesses in their planning (Britton, 1997). Once the climatic trends become clear and the reduction in uncertainty surrounding the future changes is observed, business then will be in a better position to decide that weather actions should be taken on the projected changes now or not. This decision by businesses helps them in turn to develop effect business strategy to for proper risk mitigation as well as taking advantage of the opportunities arising from the changes. However for many businesses, climate change can be a new or probably scary topic to discuss (Britton, 1999). This challenge is composed of variety of projections which may include temperature change, change in patterns of precipitation, other events and many other effects. In this essay we will discuss and will outline the sensible approach that can be used by businesses to analyze and adapt to the physical risks of climate changes and to take advantage of opportunities arising. A few of the physical changes associated with climate changes do not only bring risk but can provide the opportunities as well. For example, in some location disruption to location sites can be faced by the construction industry. They may further face problems in delivering materials to those locations as an extreme event and may damage the infrastructure. Workers can be restricted to work in limited amount of time, in tasks like roofing, due to the higher temperature. On the other hand this industry may get benefited by the opportunities like frost as it may reduce work stoppage hence the portion of year in which construction takes place can be easily extended. New products market can be created by adaptation, like climate proofing materials and building designs, or may result in shifts of market; this can be done by making materials that is locally sourced more attractive in order to reduce miles of travel (Britton and Clark 1999). We will evaluate the business response of the insurance industry to the climate change. Threats, mitigation strategies for threat and opportunities will be analyzed in detail. A number of threats are faced by insurance industry which may arise from climate change in the shape of physical effects. These threats may include high claims of insurance amount and based on historical losses reduction in the reliability of underwriting. Opportunities, however, also exist for the insurance industry if the settle in by the introducing and marketing new products, providing assistance to the businesses and homeowners by providing appropriate adaptive action to reduce losses, and by taking proactive stance helping businesses to enhance their reputation. Similarly, another risk associated with climate change is higher temperature, can create threats for a few laboratory processes which are associated chemicals and biotechnology procedures. However, opportunities also provided to this industry from climate change. Theses opportunities are to provide new products specifically fro agriculture, healthcare and other industries in response to the climate change. The company whose response to climate change we will evaluate is Travelers. In the United States, one of the largest providers of personal and commercial property and casualty insurance products is The Travelers Companies, Inc. it has its headquarters in St. Paul, Minnesota, and representatives in each state of U.S., UK, Ireland and Canada. A wide range of personal insurance products like automobile, homeowners, renters and condominium policies, and coverage for boats and yachts, floods, identity theft protection and valuable items are efficiently covered by Travelers. The Travelers being a major causality and property insurer has a consistent focus on the impacts of climate change. This consistent focus helps Travelers to develop products that well suite to the demand and need of customers and may also help achieve internal financial objectives. Following the severe seasons of 2004 and 2005 of Atlantic hurricanes, company has realized to develop and approach which is more consistent and integrated with risks associated with climate change. To respond effectively to the threats of climate change, different internal working groups were formed by the Travelers and the roles of existing groups were expanded to effectively address the threats and exposure associated with climate change. In order to trim down the exposures to extreme weather events for itself and its customers, Travelers continue to get engaged in design initiative for this purpose. For insured parties, providing information and price incentive are included in these actions. These actions are specifically to help insured parties to effectively mitigate losses either commercial or personal due to the events of extreme weather, reassessment of its threats due to climate change and modification of pricing strategies, terms and condition policy so the current and future threats can be reflected proficiently in the updates assessment. Traveler’s specific threat mitigation actions and strategies to adapt to climate change and how is took and still is taking advantages of the opportunities that climate change provided will be discussed from here onwards. 1. First step taken by Traveler towards threats assessment and its mitigation was the reexamination of Traveler’s approach and the process of underwriting property exposures in coastal locations took place at first place. The definition of coastal area was redefined and was expanded. Countries which were farther inland and were previously considered and contractual terms of coverage now include more sharing of responsibility for both households and businesses. Generally, the greater share of threat is now assumed to be shared by coastal customers than before, as greater incentives are provided to them to engage in loss control and adaptation activities. 2. Second step was to update disaster modeling. Current modeling techniques used for the prediction and management of potential catastrophe losses were utilized by Travelers and many other insurance companies. Due to the severe weather scenarios, increase in frequency of more severe and destructive hurricane, there has been a drastic increase in the estimates of losses, coastal development growth and further increase in the repairing cost of the damaged property as a result of any severe event. An effort was initiated by the Center for Health and the Global Environment at Harvard Medical School and Travelers has also joint this effort. This effort is to draw attention of a number of businesses along with the academic stakeholder toward the improvement in catastrophe modelers to better integrate science of climate change into their models and potential loss estimates 3. Third is to offer risks and threat control services. This Risk Control Services Group of Travelers provides its services to assist with the different techniques of loss mitigation and adaptation. These techniques include monitoring of code standards and regulations for building. This is to support building flexibility, to assist in planning of disaster awareness, and ensuring effective delivery of trainings for business continuity. There are around 800 consultants who work around the country. There work is to in person advice to individuals, however with the help of safety academic classes guidance and information businesses are also provided advice by these consultants. 4. Another important step taken is the redesigning of price schemes available. There are numerous differences which are taken into account before designing pricing strategies for personal and commercial customers. Such differences include the age of the building and its construction, efforts for loss mitigation and many other factors which in some way or the other contribute in the losses during the extreme weather events as a result of which changes in building codes took place over time. There has been a constant effort from Travelers for the enhancements and evaluation of its product. These improvements in product are done with help of incentive development to homeowners who have installed building components which are storm resistant. Such components are fortified roofs and shutters which have better capacity to resist against the severe weather events. An effort is made by Travelers by engaging in community and other social group to create awareness on the subject matter. Along with a broad range of efforts, industry is also engaged in by Travelers so that awareness regarding the disasters is spread to the maximum extent. This will help encourage preparedness among homeowners and commercial customers. The focus of these efforts is on providing governmental organizations with the information that will highlight long-term loss mitigation strategies benefits. This information includes the implementation and enforcement better and more stout building codes, and land-use planning which is enhanced. Travelers also seek to mitigate the effects and raise awareness about climate change by supporting the Institute of Business and Home Safety. This support is specifically to promote strategies for property damage mitigation. It also sponsors National Hurricane Survival Initiative to help promote effective hurricane preparedness (Ingleton, 19990. A pricing strategy is also introduced by Travelers that will encourage a responsible behavior towards environment. Providing driver of hybrid-electric automobiles with discounts in car insurance and providing owners of “green” commercial buildings with enhanced coverage are included in these pricing strategy. These evolving needs of customers have provided Travelers with opportunities which it is utilizing intelligently with its threat mitigation strategies. In order to respond to the customer’s evolving need and also to the potential “halo effect” which views climate-change mitigation technologies adopters as low-risk customers, these product are designed. However, not much data is available for clear actuarial support. Furthermore, it is indicated by internal market data of Travelers that a correlation exists between environmentally responsible behavior and threat mitigation. Therefore, it is assumed that hybrid-electric car purchasers are possibly also safer driver. Likewise, energy-efficient or “green” buildings builders or owners bear a general perception of being more sensible about concerned about risk-related issues like the overall building integrity and the maintenance and safety of building’s system and equipments. Green buildings are generally newer and less risk prone in comparison to the older buildings. From the above discussion we can conclude that climate change implications are ahead of the weather direct effects on buildings and operations. For many businesses these implications should be considered as an integral component of long-term planning. The threats of climate impacts are already considered by different leading companies as evaluation part of other climate risks. These threats are like those associated with compliance with regulations of potential climate, perceptions of shareholder and customer, or the greenhouse gas controls impacts on fuel prices and supplies. Businesses often overlook the physical threat of climate change n most of the situations. There are several reasons for this neglect towards this threat and they are: it is easy for businesses to leave behind current climate threats because of the future projections uncertainty and the long-term nature of the change, and corporate leaders and shareholders are pressed more on the concerns about emission of greenhouse gas and mitigation. Furthermore, it has nit yet been recognized by many decision-makers that the best predictor of future is not past either for climate averages or climate variability (Doherty, 1997). Consequently, thus, there is a pressure from regulators and shareholders for disclosure of increased climate-related risk so that the sources of threats are not overlooked. However the reality is that it is not needed by all companies today that information incorporation should be done into planning decisions on the physical effects of climate change. These risk involve decision about long-term investments in infrastructure and equipments, specifically in those sectors where climate and weather are considered as an integral par of production and of business in general like agriculture and construction, sectors in which there is heavy dependency on transport and other elements involved in their supply and demand chains, or probably those like insurance industry which suffers from reflected threats. The distribution of threats will never be even and will always be dependent on extreme events like flooding, storms or wildlife, inputs supplies, customers, or other components of the value chain are located(Ingleton, 19990). The involvement of insurance industry is however inevitable is vulnerable on two main fronts. Obviously the potential for property damage from extreme events will be significantly and adversely altered by shifts in weather patterns. . However, due to the indirect effects of governments and the direct effects of climate change to deal with them, there will also be fundamental movements in the economies of entire industries and countries or regions, with consequences for any organization or activities linked to them. The most important message that is intended to be conveyed through this essay is that some serious action and strategies are to considered and developed in order to avoid and probable threat of serious losses. In many areas, there has been a rapid rise in potential losses from natural hazards, however it becomes important and critical that cross-sectoral and proactive initiatives should be taken by insurers and let the sector in aftermath of disaster be entered into an emotive and reactive policymaking. The insurance company is well equipped with the necessary skills; however it has to prepare itself for a frustrating and lengthy evaluation and persuasion process. This needs at one level to be aimed at domestic issues in order to adapt conventional insurance processes to manage natural disasters more effectively. However, the greatest challenge will be to develop an international voice in order to have constructive dialogue with policy makers at a global level in order to develop appropriate protocols for climate change. . References Britton, N.R. 1997. Making Progress with Business Continuity Planning for Natural Disaster Management. In Britton, N.R. and Oliver, J. (eds) Financial Risk Management for Natural Catastrophes. Aon Group Australia Limited. Griffith University. Brisbane: 235 –264. Britton, N.R. 1999. Political Commitment. Ingleton, J. (ed) Natural Disaster Management. A Presentation to Commemorate the International Decade for Natural Disaster Reduction (IDNDR) 1990-2000. Tudor Rose. Leicester: 214- 216. Britton, N.R. and Clark, G.J. 1999. Emergency Management and Insurance: Toward a Collaborative Approach. In Britton, N.R. (ed) The Changing Risk Landscape: Implications for Insurance Risk Management. Aon Group Australia Limited. Southward Press Pty Ltd. Sydney: this volume. Doherty, N. 1997. Financial Innovation for Financing and Hedging Catastrophe Risk. In Britton, N.R. and Oliver, J. (eds) Financial Risk Management for Natural Catastrophes. Proceedings of a Conference sponsored by Aon Group Australia Limited. Griffith University. Brisbane: 1911-209. Ingleton, J. 1999 (ed) Natural Disaster Management. A Presentation to Commemorate the International Decade for Natural Disaster Reduction (IDNDR) 1990-2000. Tudor Rose. Leicester. Read More