Climate change and the transformation of risk: Insurance matters

UCLA Law Review

Volumn 55, Issue 6, 2008, Pages 1559-1620

  Hecht, Sean B ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

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[No Author keywords available]

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EID: 53449092798     PISSN: 00415650     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (381)

1. See CLIMATEWISE, REDUCING THE RISK FOR TOMORROW 10-12 (2007) (describing a commitment to take action on climate change signed onto by a coalition of the Association of British Insurers and sixteen major international insurance companies and highlighting the importance of insurance industry activities to help to address climate change), available at http://www.climatewise.org.uk/media/666/ climate%20wise%20for%20web.pdfi
2. Trevor Maynard, Climate Change: Impacts on Insurers and How They Can Help With Adaptation and Mitigation, 33 GENEVA PAPERS 140 (2008).
3. The Article proceeds from the assumption that anthropogenic global climate change is occurring on a significant scale, as has been well documented in the scientific literature. See generally INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, CLIMATE CHANGE 2007: THE PHYSICAL SCIENCE BASIS (2007), available at http://www.ipcc.ch/ipccreports/ar4- wgl.htm.
4. See discussion infra Part II, about specific climate change-related phenomena that are anticipated to affect the insurance industry.
5. See also Naomi Oreskes, The Scientific Consensus on Climate Change: How Do We Know We're Not Wrong?, in CLIMATE CHANGE 65, 65-99 (Joseph F.C. DiMento & Pamela Doughman eds., 2007) (discussing the state of scientific knowledge about climate change).
6. Maynard, supra note 1, at 140.
7. Id. at 145.
8. ERNST & YOUNG, STRATEGIC BUSINESS RISK: INSURANCE 2008, at 4 (2008), available at http://www.ey.com/Global/assets.nsf/Intemational/ Industry_Insurance_StrategicBusinessRisk_2008/$ file/ Industry_Insurance_StrategicBusinessRisk_2008.pdf.
9. See, e.g., Howard C. Kunreuther & Erwann O. Michel-Kerjan, Climate Change, Insurability of Large-Scale Disasters, and the Emerging Liability Challenge, 155 U. PA. L REV. 1795 (2007);
10. Evan Mills, Insurance m a Climate of Change, 309 SCIENCE 1040 (2005).
11. Maynard, supra note 1, at 142.
12. Two recent articles that do begin to address these questions are Kunreuther & Michel-Kerjan, supra note 6,
13. and Michael G. Faure, Insurability of Damage Caused by Climate Change: A Commentary, 155 U. PA. L. REV. 1875 (2007).
14. This Article seeb to explain the role private insurers play, and might play, in addressing climate change as market actors in their core business. Consequently, 1 focus on the insurance industry's products, and not on other ways in which the industry is addressing, or may address, climate change. These other efforts by insurers-such as conducting and sponsoring research, lobbying, investing, regulating the industry's own carbon emissions, educating consumers, offering risk assessment and risk management services that do not themselves involve taking on risk of loss, and participating in public policy formulation-can contribute importantly to solving societal problems relating to our changing climate. In many cases these efforts are synergistic with innovative insurance product development. For an overview of insurers' efforts to deal with climate change through a variety of mechanisms, see EVAN MILLS, FROM RISK TO OPPORTUNITY: 2007: INSURER RESPONSES TO CLIMATE CHANGE 14 (2007), available at http://eetd.lbl.gov/insurance/ opportunities/Risk-to- Opportunity-2007.pdf.
15. Kunreuther & Michel-Kerjan, supra note 6, at 1811-12.
16. INS. INFO. INST., Introduction to A FIRM FOUNDATION: HOW INSURANCE SUPPORTS THE ECONOMY 3 (2008), available at http://www.iii.org/ economics/pdf.
17. Id.
18. Contribution to the National Economy, in INS. INFO. INST., supra note 11, at 5.
19. INS. INFO. INST., World Overview, m INTERNATIONAL INSURANCE FACT BOOK: 2008-2009 (2008), available at http://www.iii.org/intemational/overview (last visited June 16, 2008).
20. For a useful discussion of the meaning of con-elated risks, see Michelle E. Boardman, Known Unknowns: The illusion of Terrorism Insurance, 93 GEO. L.J. 783, 820-21 (2005). As Boardman notes: "The risk your Los Angeles home will be destroyed by an earthquake is correlated with whether your neighbor's will be, not because your loss causes your neighbor's in any way, but because both losses come from a single cause-an earthquake. Natural disasters are highly correlated, and difficult to 'uncorrelate' because those who are not at high risk do not seek to transfer their risk. An insurer covering earthquake risk in California, for example, cannot spread the concentrated California risk with policyholders in Iowa because Iowans will not bother with earthquake coverage."
21. Id.
22. Arthur Charpentier, Insurability of Climate Risks, 33 GENEVA PAPERS 91, 95 (2008);
23. see also BARUCH BERLINER, LIMITS OF INSURABILITY OF RISKS 3-4 (1982) (articulating a related but slightly different set of the relevant factots);
24. Kunreuther & Michel-Kerjan, supra note 6, at 1820-26 (discussing insurability criteria specifically in the context of climate change). Trevor Maynard has stated that: "Insuters pool risk. They work on the premise that insurable risks can be: quantifiable (i.e. that the risk is largely constant over the period of insurance and well understood); diversifiable (that one type of risk can be offset against another, for example that household and motor books are largely independent); fortuitous (may or may not happen); economically priced (the policyholder can afford to pay)."
25. Maynard, supra note 1, at 141.
26. But see Dwight M. Jaffee & Thomas Russell, Catastrophe Insurance, Capital Markets, and Uninsurable Risks, 64 J. RISK & INS. 205 (1997) (arguing from the premise that the prospect of large single losses affecting an insurer's solvency is not an "insurability" issue, but rather a short-term challenge for an insurer that can be solved through mechanisms to make capital available to insurers to address cash flow problems);
27. Boardman, supra note 15 (noting that a risk with no price point can be considered "insurable, but at a price the public does not wish to pay").
28. See Jaffee & Russell, supra note 16;
29. see also Boardman, supra note 15 (arguing that neither large single losses nor the lack of a market, respectively, are really "insurability" questions). Nonetheless, insurers' core underwriting business, as measured by insurers' combined ratio-the ratio of underwriting losses and expenses to earned premiums-is often unprofitable.
30. See, e.g., Robert P. Hartwig, President, Ins. Info. Inst., Special Report: Earlybird Forecast 2008 (Dec. 17, 2007), http://www.iii.org/media/ industry/financials/earlybird2008 (predicting industry-wide combined ratios of 93.8 in 2007 and 97.3 in 2008, but noting that combined ratios from 1997 through 2001 ranged from 102 to 116, where a number greater than 100 indicates net underwriting losses). Insurers also earn revenue by investing the considerable assets they hold.
31. Kunreuther & Michel-Kerjan, supra note 6, at 1822-23;
32. see also Howard Kunreuther, Mitigating Disaster Losses Through Insurance, 12 J. RISK & UNCERTAINTY 171, 178 (1996).
33. Kunreuther & Michel-Kerjan, supra note 6, at 1829-30 (noting rating agencies' application of a more stringent test to rate insurers' financial condition in light of potential catastrophe);
34. Nat'l Ass'n of Ins. Comm'rs, Current Issues: Natural Catastrophe Response, http://www.naic.org/topics/topic_catastrophe.htm (last visited July 15, 2008) (arguing that "future mega catastrophes could be even worse [than the 2004 and 2005 hurricane seasons], and a reactive response will not suffice").
35. Jaffee and Russell do not, however, view this mismatch as an "insurability" issue. They instead view the challenge of providing sufficient capital to allow the industry to insure otherwise insurable losses as a distinct and separate phenomenon. Jaffee & Russell, supra note 16, at 205-07.
36. Berliner, on the other hand, sees "maximum possible loss" as a critical component of insurability of catastrophes. BERLINER, supra note 16, at 110-12.
37. Michelle Boardman describes the phenomenon in this way: "While insurers might label such a risk 'uninsurable,' it is more precise to recognize that the risk is insurable, but at a price the public does not wish to pay. Or the price might be potentially palatable to the public, but rejected in favor of anticipated 'free' government relief. In short, there is no market for it." Boardman, supra note 15, at 814.
38. See Boardman, supra note 15, at 812.
39. Kunreuther & Michel-Kerjan, supra note 6, at 1813.
40. Kunreuther & Michel-Kerjan, supra note 6, at 1822-23;
41. see WHARTON RISK MGMT. & DECISION PROCESSES CTR., MANAGING LARGE-SCALE RISKS IN A NEW ERA OF CATASTROPHES 146-47 (2008), available at http://opim.wharton. upenn.edu/risk/library/ Wharton_LargeScaleRisks_FullReport_2008.pdf (describing empirical research results showing ambiguity aversion in underwriting);
42. Kunreuther, supra note 18, at 178.
43. See Faure, supra note 8, at 1889-90;
44. Howard R. Kunreuther, R. Hogarth & J. Meszaros, Insurer Ambiguity and Market Failure, 7 J. RISK & UNCERTAINTY 71, 72 (1993).
45. See Boardman, supra note 15, at 814 (discussing how uncertainty has rendered terrorism risk uninsurable).
46. An "admitted policy is issued by an insurance company that is licensed in the country in which the insured and/or the risk is domiciled," while a "non-admitted policy is issued by an insurance company in a country in which it is not licensed and/or a country outside of the risk domicile." Donna Pfluger-Murray & Jason Taylor, Global Implications of Admitted, Non-Admitted and Self-Insurance, RISK MGMT. MAG., Oct. 2005, at 54. Admitted carriers are subject to significant regulatory constraints not placed on nonadmitted carriers, and also take part in state-run insurance guarantee programs that assist policyholders in case of insurer insolvency. They also share in the profits and losses of residual market mechanisms that guarantee coverage for extremely high risks, such as "FAIRplan" insurance for homeowners in areas especially prone to losses. Ins. Info. Inst., Residual Markets, http://www.iii.org/media/hottopics/ insurance/residual (last visited Mar. 27, 2008). Most insurance coverage in the U.S. is written by admitted insurers; nonetheless, nonadmitted carriers, mostly based in Europe, write a significant amount of insurance in the United States, especially where regulatory or internal underwriting constraints prevent admitted insurers from taking on certain types of risk. Nonadmitted insurers are still subject to solvency regulation in the U.S. states in which they operate. Ins. Info. Inst., Commercial Insurance, How It Functions, http://www.iii.org/ commerciallines/ howitfunctions/regulation (last visited Mar. 27, 2008).
47. This is discussed more fully infra Part V.
48. Maynard, supra note 1, at 142.
49. AM. ACAD. OF ACTUARIES CATASTROPHE MGMT. WORK GROUP, CATASTROPHE EXPOSURES AND INSURANCE INDUSTRY CATASTROPHE MANAGEMENT PRACTICES (2001), available athttp://www.actuary. org/pdf/casualty/catasaophe_C)61001.pdf. The word catastrophe has been defined in various ways in the insurance context, but most commentators and industry experts appear to know itwhen they see it.
50. See Charpentier, supra note 16, at 95 ("Defining a catastrophe is quite difficult, but as mentioned, for example, in Kunreuther, a key concept is the geographic area, and an induced strong correlation among the losses in their portfolio (thousands of policies hit, for several lines of business-property, car insurance, life insurance for casualties, business interruption, etc.)." (citations omitted)). The U.S. property insurance industry considers an event a catastrophe when "claims are expected to reach a certain dollar threshold, currently set at $25 million, and more than a certain number of policyholders and insurance companies are affected." Ins. Info. Inst., Catastrophes: Insurance Issues (June 2008), http://www.iii.org/media/hottopics/insurance/catastrophes.
51. Mills, supra note 6, at 1042.
52. U.S. GOV'T ACCOUNTABILITY OFFICE, CATASTROPHE RISK: U.S. AND EUROPEAN APPROACHES TO INSURE NATURAL CATASTROPHE AND TERRORISM RISKS 9-11, 24 (2005), available at http://www.gao.gov/new.items/d05199.pdf;
53. RAWLE O. KING, HURRICANE KATRINA: INSURANCE LOSSES AND NATIONAL CAPACITIES FOR FINANCING DISASTER RISKS 3-9 (2005), available at http://www.au.af.mil/au/awc/awcgate/crs/rB3086.pdf.
54. Id.
55. See Mills, supra note 6.
56. See generally Mills, supra note 6,
57. and Kunreuther & Michel-Kerjan, supra note 6, for a discussion of these impacts, which are more fully discussed infra Part ILA.
58. Swiss Re, Financial Solutions for Weather Risks, http://www.swissre.com/ pws/about%20us/ knowledge_expertise/top%20topics/ financial%20%for%20weather%20risk.html (last visited July 15, 2008).
59. For statistics on weather-related losses suffered by the U.S. economy, see NAT'L OCEANIC AND ATMOSPHERIC ADMIN., ECONOMIC STATISTICS FOR NOAA 9-20 (5th ed. 2006), available at http://www.economics.noaa.gov/library/documents/ economic_statistics_and_methodology/ NOAAEconomicStatistics-May2006.pdf.
60. Swiss Re, supra note 36.
61. Maynard, supra note 1, at 140.
62. Swiss Re, supra note 36 (referring to a U.S. Department of Commerce statistic). The National Oceanic and Atmospheric Administration, an agency within the U.S. Department of Commerce, states that weather- and climate-sensitive industries directly and indirectly account for about one-third of the U.S.'s GDP (about $4 trillion in 2005 dollars) and indirectly account for about one-tenth of the GDP. See NATT. OCEANIC AND ATMOSPHERIC ADMIN., supra note 36, at 9.
63. Kerry Emanuel, Increasing Destrucoveness of Tropical Cyclones Over the Past 30 Years, 436 NATURE 686, 686 (2005);
64. Mark A. Saunders & Adam S. Lea, Large Contribution of Sea Surface Warming to Recent Increase in Atlantic Hurricane Activity, 451 NATURE 557 (2008). But see sources cited infra note 41, for contrary points of view.
65. See Johnny C.L. Chan, Comment on "Changes in Tropical Cyclone Number, Duration, and Intensity in a Warming Environment," 311 SCIENCE 1713b (2006);
66. Christopher W. Landsea, Hurricanes and Global Warming, 438 NATURE E11, E11-E12 (2005);
67. Roger Pielke, Jr., Are There Trends in Hurricane Destruction?, 438 NATURE E11 (2005);
68. Chunzai Wang & Sang-Ki Lee, Global Warming and United States Landfalling Hurricanes, 35 GEOPHYSICAL RES. LETTERS L02708 (2008).
69. But see Emanuel, supra note 40, at 686;
70. Saunders & Lea, supra note 40, at 557-560. Science journalist Chris Mooney has written a fascinating and provocative book chronicling the professional and scientific dispute over the relationship between climate change and trends in tropical cyclone number, duration, and severity.
71. See CHRIS MOONEY, STORM WORLD: HURRICANES, POLITICS, AND THE BATTLE OVER GLOBAL WARMING (2007).
72. See Laurence S. Kalkstein et al., The 2003 European Summer Heat Wave and Analog Studies for U.S. Cities, in THE CTR. FOR HEALTH &. THE GLOBAL ENV'T, CLIMATE CHANGE FUTURES: HEALTH, ECOLOGICAL AND ECONOMIC DIMENSIONS 53 (2005), avouable at http://www.cliniatechangefutures.org/pdf/CCF_Report_Final_10. 27.pdf [hereinafter CLIMATE CHANGE FUTURES] (citing studies that have concluded that global warming is related to more intense and prolonged heat waves than in the past);
73. Nat'l Climatic Data Ctr., Nat'l Oceanic and Atmospheric Admin., Significant Climate Anomalies and Events in 2007 (2007), http.//www.ncdc.noaa. gov/img/climate/research/2007/ann/significant-extremes2007.gif (providing a map of extreme weather events throughout the world that may be linked to global temperature increases).
74. But see Nat'l Climatic Data Ctr., Nat'l Oceanic and Atmospheric Admin., Global Warming: Frequently Asked Questions, http://www.ncdc.noaa.gov/oa/ climate/globalwarming.html (last visited Apr. 7, 2008) (recognizing "clear evidence" of regional trends toward climate variability and extremes on regional scales, but noting that there is little evidence of such trends on a global scale).
75. See INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note 2, at 5-9.
76. Id. at 13.
77. Cf. INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, CLIMATE CHANGE 2007: IMPACTS, ADAPTATION AND VULNERABILITY 9-11 (2007), available at http://www.ipcc.ch/ ipccreports/ar4-wg2.htm ("Recent climate changes and climate variations are beginning to have effects on many other natural and human systems [i.e., coastal and glacier lake floods, longer dry seasons, uncertain rainfall]. However, based on the published literature, the impacts have not yet become established trends.... Drought-affected areas will likely increase in extent. Heavy precipitation events, which are very likely to increase in frequency, will augment flood risk."). Nonetheless, according to the report, "[g]iven that the strong rise in global temperatures only began in the 1970s, it is difficult to demonstrate statistically a change in the occurrence of extreme floods and storms (with return periods of 20 years or more) simply from the recent historical record."
78. Id. at 109 (citation omitted). The report cited inconclusive evidence on river flooding and Northeast Atlantic extra-tropical cyclones, but did note that increased sea surface temperatures have been blamed for recent increased storm activity and intensity in the Atlantic.
79. See id.
80. Swiss Re, Products and Services, http://www.swissre.com/pws/about%20us/ knowledge_expertise/top%20topics/products%20and%20services.html (last visited May 10, 2008).
81. AIG also believes that climate change is affecting weather patterns and is responsible for "more intense hurricanes." AIG, AIG's Policy and Programs on Environment and Climate Change 6 (2008), http://media.corporate-ir. net/media_files/irol/76/76115/reports/AIG_climate_change_updated_0607.pdf (noting among its climate change initiatives its participation in a research project to "develop a model for coastal community resilience in light of more intense hurricanes");
82. see also AIG, Climate Change Basics, http://phx.corporate-ir.net/ phoenix.zhtrru?c=76115&p=irol-govresponsclimatebasics (last visited May 10, 2008) [hereinafter AIG, Climate Change Basics] ("The [greenhouse] warming affects global and regional climate patterns . . . .").
83. ASS"N OF BRITISH INSURERS, COASTAL FLOOD RISK-THINKING FOR TOMORROW, ACTING TODAY 2, 4 (2006), available a http://www.climatewise.org.uk/media/613/abi_coastal_flooding_report.pdf
84. See LLOYD'S OF LONDON, CLIMATE CHANGE: ADAPT OR BUST 3 (2006), available at http://www.Iloyds.eom/NR/rdonlyres/38782611-5ED3-4FDC-85A4-5DEAA88A2DA0/0/ FINAD60climatechangereport.pdf ("Until recently, world opinion has been divided: are current weather trends the result of long-term climate change or not? And what role, if any, has climate change played in the recent spate of weather-related catastrophes?... However, a growing body of expert opinion now agrees that the climate is changing-and that human activity is playing a major role. Most worryingly, the latest science suggests that future climate change may take place quicker than previously anticipated.");
85. 2 levels," and "We don't know exactly what impact climate change will have.");
86. Lloyd's of London, Climate Change, http://www.lloyds.com/ News_Centre/360_risk_project/The_debate_on_climate_change (last visited May 10, 2008) ("The frequency and magnitude of catastrophes-especially weather related catastrophes-has increased significantly in recent years. Climate change is expected to exacerbate this further, and by 2050 mega-catastrophes like Hurricane Katrina, which used to occur every 100 years, are predicted to happen every 25.");
87. Lloyd's of London, Lloyd's Urges Insurers to Take Climate Change Seriously or Risk Being Swept Away, http://www.lloyds.com/News_Centre/ Features_from_Lloyds/ Climate_change_adapt_or_bust.htm (last visited May 10, 2008) ("[C]urrent sea levels are higher in the Gulf of Mexico than in the past and with sea temperatures rising, the industry must prepare for increased windstorm activity___Over the past few years, insurers have battled with record hurricane seasons, a trend that is expected to continue.").
88. See, e.g., Swiss Re, supra note 45.
89. Kunreuther & Michel-Kerjan, supra note 6, at 1821.
90. NAT'L OCEANIC AND ATMOSPHERIC ADMIN., supra note 36.
91. EVAN MILLS & EUGENE LECOMTE, FROM RISK TO OPPORTUNITY: HOW INSURERS CAN PROACTIVELY AND PROFITABLY MANAGE CLIMATE CHANGE 4 (2006), available at http://eetd.lbl.gov/ erralls/PUPS/PDF/Ceres_Insurance_Climate_Report_090106.pdf.
92. See id. at 7.
93. Id. These losses do not include flood losses insured under the federal National Flood Insurance Program (NFIP), which encompasses many homeowners' insured claims of property damage relating to Katrina.
94. See U.S. Dep't Homeland Security, What Government Is Doing, http://www.dhs.gov/xprepresp/programs/gc_1157649340100.shtm (last visited May 10, 2008) (stating that more than $16.1 billion has been paid out to more than 205,000 policyholders from the NFIP since the 2005 hurricane season).
95. Kunreuther & Michel-Kerjan, supra note 6, at 1805-07;
96. see also Barclay G. Jones & William A. Kandel, Population Growth, Urbanization, and Disaster Risk and Vulnerability in Metropolitan Areas: A Conceptual Framework, in 168 WORLD BANK DISCUSSION PAPERS: ENVIRONMENTAL MANAGEMENT AND URBAN VULNERABILITY 51, 68-70 (Alcira Kreimer & Mohan Munasinghe eds., 1992) (arguing persuasively that urbanization and related activities will make disaster losses much worse in the future).
97. See Mills, supra note 6;
98. Kunreuther & Michel-Kerjan, supra note 6.
99. See generally Mills, supra note 6;
100. Kunreuther & Michel-Kerjan, supra note 6, for discussion of these impacts.
101. See Boardman, supra note 15, at 814.
102. INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note 44, at 12;
103. see also AIG, Climate Change Basics, supra note 45 ("The [greenhouse] warming affects global and regional climate patterns, water supply, and sea level. Models and simulations reveal impacts, some of which are evidenced already, such as melting of permafrost and ice caps; [and] rises in sea level . . . .").
104. ASS'N OF BRITISH INSURERS, supra note 46, at 6.
105. Paul Epstein et al., Forests: Drought, Beetles and Wildfrres, in CUMATE CHANGE FUTURES, supra note 42, at 65, 67;
106. A.L. Westerling et al., Warming and Earlier Spring Increase Western U.S. Forest Wildfire Activity, 313 SCIENCE 940, 941-42 (2006).
107. Paul Epstein et al-, supra note 60, at 67 (noting that between 1985 and 1994, U.S. wildfires resulted in an average insured cost of about $300 million per year and the total destruction of more than 9,000 homes).
108. Id.
109. See PRADEEP KURUKULASURIYA & SHANE ROSENTHAL, CLIMATE CHANGE AND AGRICULTURE: A REVIEW OF IMPACTS AND ADAPTATIONS 1-5 (2003), avaMk at http://www.undp.org/ gef/adaptation/docs/EDP_91-W.pdf;
110. Jerry R. Skees, A Role for Capital Markets in Natural Disasters: A Piece of the Food Security Puzzle, 25 FOOD POL'Y 365, 365-66 (2000).
111. KURUKULASURIYA & ROSENTHAL, supra note 63, at 38-41.
112. Id.
113. See Cynthia Rosenzweig et al., Agriculture: Climate Change, Crop Pests and Diseases, in CLIMATE CHANGE FUTURES, supra note 42, at 70-72;
114. William Easterling & Pramod Aggarwal, Food, Fibre and Forest Products, in INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note 44, at 273, 276, 296-303;
115. cf. Skees, supra note 63 (discussing various means of protecting developing nations against food shocks associated with natural disasters);
116. see also Kalkstein et al., Extreme Weather Events: Heat Waves, in CLIMATE CHANGE FUTURES, supra note 42, at 53, 55 (2005) (noting that the 2003 European heat wave caused a loss of livestock, wilted crops, and carbon loss in soils, and was linked to fires that burned agricultural land).
117. Rosenzweig et al., supra note 66, at 70, 74.
118. See INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note 58, at 12. That climate change is likely to have serious health consequences is accepted by at least some major insurers.
119. AIG, Climate Change Basics, supra note 45 ("Models and simulations reveal impacts, some of which are evidenced already, such as... increases in disease and pests.").
120. Cf. CLIMATE CHANGE FUTURES, supra note 42, at 32-52 (presenting case studies and discussing projected increases in infectious and respiratory diseases caused directly or indirectly by climate change).
121. But see INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note 44, at 107-09 (cautioning that the relationship between climate change and health changes is sometimes overstated and that nonclimatic factors, such as social factors or reporting changes, may be responsible).
122. Kristie L Ebi et al., Molonia, in CLIMATE CHANGE FUTURES, supra note 42, at 32 (noting that droughts, flooding, and heavy rains can also indirecdy affect malaria distribution).
123. But see INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note, at 12 (noting that "[c]limate change is expected to have some mixed effects, such as a decrease or increase in the range and transmission potential of malaria in Africa").
124. Paul Epstein & Douglas Causey, West Nile Virus: A Disease of Wildlife and a Force of Global Change, in CLIMATE CHANGE FUTURES, supra note 42, at 41-43;
125. Centers for Disease Control and Prevention, West Nile Vims: Questions and Answers (2007), http://www.cdc.gov/ncidod/dvbid/ westnile/qa/cases.htm.
126. See Epstein & Causey, supra note 70, at 42.
127. See John Brownstein, Lyme Disease: Implications of Climate Change, in CLIMATE CHANGE FUTURES, supra note 42, at 45.
128. See Christine A. Rogers, Carbon Dioxide and Aeroallergens, in CLIMATE CHANGE FUTURES, supra note 42, at 48.
129. Id. at 49, 51.
130. Id. at 51-52.
131. Ann E. Carlson, Heat Waves, Global Wanning, and Mitigation, 26 UCLA J. ENVTL. L & POL'Y 169, 174-76 (2008).
132. Laurence S. Kalkstein et al., supra note 42, at 54.
133. Id. at 55.
134. See id. at 56-57 for a discussion and chart of projected excess deaths in Detroit, New Yotk, Philadelphia, St. Louis, and Washington, D.C., if a heat wave on par with Europe's 2003 heat wave were to hit the U.S. For a thorough discussion of the 2003 heat wave and its likely relationship to climate change,
135. see Marc Poumadere et al., The 2003 Heat Wave in France: Dangerous Climate Change Here and Now, 25 RISK ANALYSIS 1483, 1488-89 (2005).
136. See Ann E. Carlson, supra note 76 for a discussion of heat waves and an interesting analysis of why people perceive other weather-related mortality as more significant than heat-related mortality.
137. See Tom Kosatsky, Editorial, The 2003 European Heat Waves, EUROSURVEILLANCE, July 1, 2005, http://www.eurosurveillance.org/em/ v10n07/1007-222.asp;
138. Janet Larsen, Setting the Record Straight: More than 52,000 Europeans Died From Heat in Summer 2003, EARTH POL'Y INSTITUTE, July 28, 2006, http://www.earth-policy.org/Updates/2006/ Update56.htm.
139. Gary Guzy, Insurance and Climate Change, in GLOBAL CLIMATE CHANGE AND U.S. LAW 541, 546 (Michael B. Gerrard ed., 2007).
140. Christina Ross, Evan Mills & Sean B. Hecht, Limiting Liability in the Greenhouse: Insurance Risk-Management Strategies in the Context of Global Climate Change, 26A STAN. ENVTL. L.J. 251, 253 (2007),
141. 43A STAN. J. INT'L LAW 251, 253 (2007);
142. LLOYD'S OF LONDON, supra note 47, at 5 ("We foresee an increasing possibility of attributing weather losses to man made factors, with courts seeking to assign liability and compensation for claims of damage. Exposures can also be expected to increase in respect of property, business interruption and political risks, demanding the same response.").
143. Goldman Sachs has likened potential corporate liability for carbon emissions to liability for asbestos. GOLDMAN SACHS, PORTFOLIO STRATEGY UNITED STATES 4 (2005), available at http://www.pewclimate.org/docUploads/ Goldman%20Environment%20Portfolio%20Strategy%202005.pdf.
144. Ross, Mills & Hecht, supra note 81, at 288;
145. see also infra note 171 and accompanying text.
146. Id. at 283-89.
147. Id.
148. Id.;
149. see also CLIMATE CHANGE FUTURES, supra note 42, at 7 (noting the energy sector's vulnerabilities to climate change as including blackouts due to heat waves, pipeline and power transmission problems due to melting tundra, nonfunctional power plant cooling systems due to warmed waters, and an increased number of lightning claims).
150. See Ross, Mills & Hecht, supra note 81, at 290-92.
151. Jeffrey A. Smith & Matthew Morreale, The Fiduciary Duties of Officers and Directors, in GLOBAL CLIMATE CHANGE AND U.S. LAW, supra note 80, at 497, 497-529 (providing a comprehensive discussion of fiduciary responsibilities in the context of climate change).
152. See Jeffrey A. Smith & Matthew Morreale, Disclosure Issues, in GLOBAL CLIMATE CHANGE AND U.S. LAW, supra note 80, at 453, 458-68 (providing a detailed discussion of SEC disclosure issues and climate change).
153. See Smith & Morreale, supra note 87, at 497-529;
154. Smith & Morreale, supra note 88, at 458-68.
155. See Ins. Info. Inst., The Insurance Industry's Contribution to the Legal Services Industry, http://www.economicinsurancefacts.org/economics/ industries/legal (last visited May 9, 2008). In a table on this webpage, the Insurance Information Institute shows that over the period 2004 through 2006, defense and cost containment expenses (including legal fees, costs of investigation, costs of engaging expert opinion, and other related litigation and pre-litigation expenses) averaged over 86 percent of all insurers' expenses in products liability lines, over 36 percent in the liability portion of commercial general peril lines, and over 27 percent in general liability lines.
156. Id.
157. Maynard, supra note 1, at 140.
158. See generally MILLS, supra note 9.
159. See id. at 6-9;
160. see also LLOYD'S OF LONDON, CLIMATE CHANGE: ADAPT OR BUST, supra note 47 (arguing that climate change poses a crisis and a set of opportunities for the insurance industry, and proposing an agenda for the industry to address climate change);
161. ClimateWise, Reducing the Risk for Tomorrow, http://www.climatewise.org. uk (last visited May 9, 2008) (articulating the commitment of a consortium of insurers, including AIG, Allianz, Lloyds, Munich Re, Swiss Re, and many other companies, and the Association of British Insurers to "taking action on climate change and to reporting publicly on our own performance");
162. AIG, Climate Change and the Insurance Industry, http://phx.corporate-ir. net/phoenix.zhtml?c=76115&p=irol-govresponsclimateindustry (last visited May 9, 2008) (stating on AlG's website that "[p]erhaps no other industry has responded as quickly to changes in climate patterns as the insurance industry-with the AIG companies playing a leading role in this response");
163. Swiss Re, Tackling Climate Change 7 (2004), available at http://www.swissre.com/resources/d8262880455c7a0fb0dcba80a45d76a0- Tackling_climate _change.pdf (setting forth the impacts that Swiss Re believes climate change will have on the insurance industry, including impacts to property, health, agriculture, business operations, and professional liability, and associated opportunities for the insurance industry).
164. BERLINER, supra note 16, at 10.
165. Id. at 29-36.
166. Kunreuther & Michel-Kerjan, supra note 6, at 1798-1804.
167. Id. at 1822-23;
168. Maynard, supra note 1, at 142 ("In these circumstances, insurers must review whether insurance coverage can remain unchanged. If not, then terms and conditions are revised and, in extremis, cover is removed altogether.").
169. WHARTON RISK MGMT. AND DECISION PROCESSES CTR., supra note 24, at 154-58 (discussing the high levels of uncertainty in catastrophe modeling).
170. See Daniel A. Farber, Adapting to Climate Change: Who Should Pay?, 23 J. LAND USE & ENVTL. L. 1, 19 (2007) ("The case for insurance is weaker when harms are more predictable, such as the impact of gradual sea level changes on coastal areas. When harms are
171. See Boardman, supra note 15, at 822-23. Adverse selection should be a problem in weather catastrophe insurance markets, however, only where premiums are limited by regulation. Adverse selection refers to the phenomenon where consumers prone to greater risk are systematically more likely to insure because of that greater risk, and at the same time insurers are unable to distinguish those consumers from others with lower risk profiles. In these cases, insurers will tend to mis-price risks, consistently charging too little for insurance, and also the risks will be too concentrated within the risk pool. In the case of severe weather catastrophes, while insurers' underwriting is vulnerable to uncertainties, it is unlikely that consumers would typically have more precise information about their risk profile than the insurers have, and so adverse selection appears to be a serious concern only where insurers are forced to write insurance at rates that do not accurately reflect risks. Nonetheless, where insurers are able to price products at a level commensurate with risk, having a risk pool with a high risk concentration might well result in an inability to price insurance at a rate that any policyholders are willing to pay.
172. Charpentier, supra note 16, at 95.
173. Cf. BERLINER, supra note 16, at 42-43.
174. See MARK LYNAS, SIX DEGREES: OUR FUTURE ON A HOTTER PLANET (2007), for a discussion, based on peer-reviewed scientific literature, of the predicted impacts of climate change at various levels of warming, including the increasing level of uncertainty at extreme but possible levels of warming. Lynas notes: "With five degrees [Celsius] of [average] global warming, an entirely new planet is coming into being-one largely unrecognizable from the Earth we know today."
175. Id. at 207. Even more startling, if that is possible, is his assessment of the level of uncertainty surrounding the consequences of six degrees Celsius of average warming: As we enter a world six degrees warmer than today's, there are few clues to what really lies in store. My Virgil guides in this latter-day version of Dante's inferno have so far been mostly climate modeling scientists, yet the majority of them have fallen by the wayside now: the current generation of climate models almost all stop short of simulating six degrees of warming by 2100. (But as we have already seen, models do have the tendency to be conservative by design, so this outcome cannot be discounted-and indeed is part of the IPCCs scenario of projections on which this book is based.)
176. Id. at 233;
177. see also INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, supra note 2, at 10 (assessing the "likely" range of global average warming under the most pessimistic emissions scenario used for modeling as 2.4°C to 6.4°C).
178. See LLOYD'S OF LONDON, CLIMATE CHANGE: ADAPT OR BUST, supra note 47.
179. See, e.g., MILLS, supra note 9, at 7-9 (discussing various insurers' research relating to climate change risks).
180. See, e.g., Martin T. Katzman, Pollution Liability Insurance and Catastrophic Environmental Risk, 55 J. RISK & INS. 75, 76-77 (1988) (discussing insurers' withdrawal from environmental liability insurance market after the passage of RCRA and CERCLA).
181. See supra note 57 and accompanying text.
182. Katzman, supra note 104, at 76 (discussing insurers' withdrawal from environmental liability insurance market after the passage of RCRA and CERCLA).
183. Ins. Info. Inst., Reinsurance (Mar. 2008), http://www.iii.org/media/ hottopics/insurance/reinsurance.
184. LYNAS, supra note 101, at 207.
185. Compare id. at 3-53 (discussing the likely impacts from a global average temperature rise of one degree Celsius),
186. with id. at 207-259 (discussing the likely impacts, and uncertainties about impacts, resulting from a temperature rise of five to six degrees Celsius).
187. See INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, Summary for Policymakers, in CLIMATE CHANGE 2007: THE PHYSICAL SCIENCE BASIS 12-18 (2007) (linking anthropogenic increases in atmospheric greenhouse gas (GHG) concentrations to climatic change and to average global temperature increases).
188. See generally INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, Summary for Policymakers, in CLIMATE CHANGE 2007: MITIGATION (2007), available at http://www.ipcc.ch/pdf/assessment-report/ar4/wg3/ar4-wg3-spm.pdf (identifying the need for carbon dioxide emissions cuts to reach atmospheric greenhouse gas stabilization and evaluating strategies for achieving those cuts).
189. See, e.g., MUNICH RE, PERSPECTIVES: TODAY'S IDEAS FOR TOMORROW'S WORLD (2006), available at http://www.munichre.com/publications/302-05051_en.pdf (Munich Re);
190. Swiss Re, Our Position and Objectives, http://www.swissre.com/pws/ about%20us/knowledge_expertise/ top%20topics/our%20position%20and%20objectives. html (last visited May 9, 2008) (Swiss Re);
191. Lloyd's of London, Rapid Climate Change (2006), available at http://www.lloyds.com/NR/rdonlyres/ FCA144E6-24D5-425E-B058-3A64E020E18F/0/ 360_RapidClimateChangeReport.pdf (Lloyd's).
192. BERLINER, supra note 16, at 44-45.
193. See Erwann Michel-Kerjan & Frederic Morlaye, Extreme Events, Global Warming, and Insurance-Lmked Securities: How to Trigger the "Tipping Point," 33 GENEVA PAPERS 153, 153-56 (2008).
194. Jaffee &. Russell, supra note 16, at 205-06 (noting the failure of insurance markets in catastrophe risk to remain strong after then-recent catastrophic losses from the Northridge earthquake and other disaster risk);
195. id. at 217-18 (discussing the capital limitations on the reinsurance industry's ability to cope with catastrophic risks).
196. Id. at 217-18;
197. see Kenneth A. Froot, The Market for Catastrophe Risk: A Clinical Examination, 60 J. FIN. ECON. 529, 542-54 (2001);
198. Kenneth A. Froot & Steven E. Posner, The Pricing of Event Risks With Parameter (Jnceriainry, 27 GENEVA PAPERS ON RISK & INS. THEORY 153, 164 (2002).
199. A discussion of the operation of these instruments is beyond the scope of this Article. See Michel-Kerjan & Morlaye, supra note 112, for a thoughtful and comprehensive discussion of these various methods of addressing die capital requirements of responding effectively to catastrophe risk, along with recommendations for how to address current limitations on the markets for these instruments and expand those markets.
200. See Michel-Kerjan & Morlaye, supra note 112, at 157-68 (discussing the operation of each of these hedging vehicles).
201. See Cesare Dosi & Michele Moretto, Global Wanning and Financial Umbrellas, J. RISK FIN., Summer 2003, at 18,
202. and Patrick L Brockett, Mulong Wang & Chuanhou Yang, Weather Derivatives and Weather Risk Management, 8 RISK MGMT. & INS. REV. 127 (2005), for background information and interesting discussions of the use of some of these instruments to hedge the risk of severe weather events.
203. See, e.g., Mike Anderson & Oliver Suess, Hedge Funds, Betting on Hurricanes, Wade in to Fund Insurers, BLOOMBERG.COM (July 12, 2006), available at http://www.bloomberg.com/apps/ news?pid=20601103&sid=akBREf1htxSw (discussing the involvement of major reinsurers in selling insurance-linked securities (ILSs) and the purchase of these securities by hedge funds).
204. See Michel-Kerjan & Morlaye, supra note 112, at 158-74 (discussing the growing use of these instruments, barriers to their wider acceptance, and possible means to reaching a "tipping point" in which the market will become robust).
205. See sources cited supra note 110 and accompanying text.
206. See supra text accompanying note 110;
207. see also James W. Hutchin, Envrrornnental Conservation and ate Risk Industry: A Natural Alignment of Interests, 27 GENEVA PAPERS ON RISK & INS. 246, 246 (2002) (arguing that there is a considerable common interest between the insurance industry and "those who are working to protect the planet").
208. Cf. D.J. RASBASH, EVALUATION OF FIRE SAFETY 72 (Wiley 2004) (discussing the role of the insurance industry in developing building codes and fire safety standards in the United States); Insurance Institute for Highway Safety Homepage, http://www.iihs.org (stating that the Insurance Institute for Highway Safety, "wholly supported by auto insurers," is "dedicated to reducing the losses-deaths, injuries, and property damage-from crashes on the nation's highways"). But in some cases, insurers' apparent motivation to provide incentives for loss prevention may be secondary to their motivation to reduce uncertainty.
209. See Robert Kneuper & Bruce Yandle, Auto Insurers and the Air Bag, 61 J. RISK & INS. 107 (1994) (arguing that insurers' aggressive lobbying for adoption of airbags in cars resulted from a desire to reduce uncertainty rather than risk). This observation is consistent with two facts about the industry. First, predictable risks can be managed by insurers if they have the flexibility to charge a sufficient premium, but at a given premium level each dollar of additional loss is money out of an insurer's profit. And second, as discussed above, uncertainty makes risk less insurable.
210. See MILLS, supra note 9, at 12-14, for examples of insurance coverages where these incentives are well aligned.
211. SEE Susan K. Laury & Melayne Morgan Mclnnes, The Impact of Insurance Prices on Decision Making Biases: An Experimental Analysis, 70 J. RISK & INS. 219, 220, 230-31 (2003) (concluding that pricing insurance to reflect accurately the risks of policyholders' consumer choices provides information that motivates even nonpolicyholders to make decisions that more accurately reflect the impact of those risks).
212. Cf. Howard Kunreuther, Disaster Mitigation and Insurance: Learning From Katrina, 604 ANNALS AM. ACAD. POL. & SOC. Sci. 208, 211-16 (2006) (noting widely documented research showing that people do not accurately assess future consequences of actions and therefore do not adopt loss-prevention measures, but concluding that premiums that accurately reflect risk will help to motivate loss prevention among consumers).
213. See ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION 2-5 (1990), for a critical discussion of these basic frames.
214. See generally MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS (rev. ed., Harvard University Press, 1971);
215. Garrett Hardin, The Tragedy of the Commons, 162 SCINCE1243 (1968).
216. But see Part IV, infra, for examples where insurers are acting in ways that address climate change risk through their products, and a discussion of why this may be so.
217. Ann E. Carlson, Recycling Norms, 89 CAL L REV. 1231, 1243 (2001).
218. There are clearly some barriers even to recognition of the problem. For example, some advocates for the U.S. insurance industry generally are still openly questioning the validity of possible links between climate change and increasing insured risks. See, e.g., Robert Hartwig, Senior Vice-President and Chief Economist for the New York-based Insurance Information Institute, The US View, in LLOYD'S, WHAT NEXT ON CLIMATE CHANGE? 8 (2006), available at http://sumrmts.ncat.org/ docs/global%20warming_lloyds_Oct_2006.pdf.
219. ALLIANZ GROUP & WWF, CLIMATE CHANGE AND INSURANCE: AN AGENDA FOR ACTION IN THE UNITED STATES 31 (2006), available at http://www.worldwildlife.org/climate/ WWFBinaryitem3840.pdf;
220. Martin F. Grace & Robert W. Klein, Facing Mother Nature, REG., Fall 2007, at 28, 31-33 (criticizing regulators for subsidizing the risk of coastal homeowners after the 2005 hurricane season);
221. see also Letter From Robert Detlefsen, Ph.D., Vice President, Public Policy, National Association of Mutual Insurance Companies, to Mike Kreidler, Chair, Climate Change andGlobal Warming (EX) Task Force, National Association of Insurance Commissioners (NAIC) (Jan. 10, 2008) (on file with author).
222. Richard Dobbs, Keith Leslie &. Lenny T. Mendonca, Building the Healthy Corporation, 2005 MCKINSEY Q. 63, 65, available at http://www.bmacewen.com/blog/pdf/ McKinsey.BuildingTheHealthyFirm.pdf.
223. Id.
224. Id.
225. See Paul Slovic, Perception of Bisk, 236 SCIENCE 280, 280-85 (1987) (discussing the differences between laypeople's risk perception and that of identified experts). Slovic concludes that "there is wisdom as well as error" in lay perceptions of risk, and that laypeople's "basic conception of risk is much richer than that of the experts and reflects legitimate concerns that are typically omitted from expert risk assessments."
226. Id. at 285.
227. See generally Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of Decision Under Risk, 47 ECONOMETRICS 263 (1979), for the classic exposition of the factors that underpin decisionmaking about risk.
228. Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES 3, 4-14 (Daniel Kahneman, Paul Slovic, &. Amos Tversky eds., 1982).
229. WHARTON RISK MANAGEMENT & DECISION PROCESSES CENTER, supra note 24.
230. Id.
231. Michael G. Faure & Véronique Bruggeman, Catastrophic Risks and First-Party Insurance 8-36 (Sept. 2007), available at http://ssrn.com/abstract= 1086036;
232. Howard Kunreuther &. Mark Pauly, Insurance Decision-Making and Market Behavior, in 1 FOUNDATIONS AND TRENDS IN MICROECONOMICS 63, 92 (2005).
233. Kunreuther & Pauly, supra note 136, at 63, 110;
234. Kunreuther, supra note 123, at 211;
235. Kunreuther, supra note 18.
236. Kunreuther, supra note 123, at 211;
237. Kunreuther & Pauly, supra note 136, at 63, 110.
238. See RICHARD A. POSNER, CATASTROPHE; RISK AND RESPONSE 92-123 (2004), for an engaging and wide-ranging discussion of the reasons that people tend to discount the value of low-probability catastrophic risks.
239. Kunreuther, supra note 18, at 174-76;
240. Paul R. Kleindorfer & Howard Kunreuther, The Complementary Roles o/ Mitigation and Insurance in Managing Catastrophic Risks, 19 RISK ANALYSIS 727, 734 (1999).
241. Kunreuther, supra note 123, at 216.
242. Kunreuther & Pauly, supra note 136, at 110-11.
243. Id.
244. Id.
245. Id. at 80-82.
246. Id. at 97;
247. Faure & Bruggeman, supra note 136.
248. Kunreuther, supra note 123, at 212.
249. Kunreuther & Pauly, supra note 136, at 111.
250. Id. at 115-16.
251. See Kunreuther, supra note 123, at 221.
252. See, e.g., Jennifer Bayot, Mississippi Sues Insurers Over Damage From Storm, N.Y. TIMES, Sept. 16, 2005 (describing the Mississippi Attorney General's lawsuit against insurers for alleged unfair business practices in settling property and casualty claims relating to Hurricane Katrina).
253. Kunreuther, supra note 18, at 182 (1996);
254. Dan R. Anderson, All Risks Rating Within a Catastrophe Insurance System, 43 J. RISK & INS. 629, 633-51 (1976) (proposing a comprehensive "all-risks" private insurance system with national guidelines). Anderson noted that the system of allowing risks to be insured ad hoc is costly, inefficient, inequitable, and leaves many homeowners uninsured for at least one catastrophe peril.
255. Id. at 633.
256. Faure &. Bruggeman, supra note 136. The idea of compulsory insurance is not new.
257. C/. John V. Krutilla, An Economic Approach to Coping With Flood Damage, 2 WATER RESOURCES RES. 183 (1966)
258. reprinted in 2 THE ECONOMICS OF NATURAL HAZARDS 13, 16-19 (Howard Kunreuther & Adam Rose eds., 2004) (suggesting a compulsory insurance program for floodplain residents).
259. Kunreuther, supra note 123, at 221.
260. Insurers offer services such as risk management and risk assessment that also can be considered products. This Article does not discuss the role that these products might play in addressing climate change, but instead focuses on core insurance underwriting. Nonetheless, these services may contribute importantly to insurers' efforts to address climate change.
261. See, e.g., S. Pacala & R. Socolow, Stabilization Wedges: Solving the Climate Problem for the Next 50 Years With Current Technologies, 305 SCIENCE 968 (2004) (discussing the magnitude ofgreenhouse gas emissions reductions necessary to solve climate change, and proposing particular emissions reductions strategies).
262. Cf. Michael P. Vandenbergh, Jack Barkenbus, & Jonathan Gilligan, Individual Carbon Emissions: The Low-Hanging Fruit, 55 UCLA L. REV. 1701 (highlighting changes that individuals and households can make to reduce greenhouse gas emissions).
263. Compare Vandenbergh, Barkenbus & Gilligan, supra note 155, at 1717-19, for an insightful analysis of the ways in which a large number of people each making small changes in everyday habits to reduce individual emissions will have a significant aggregate impact on greenhouse gas emissions.
264. Fireman's Fund, Green Building Solutions, http://www.firetnansfund.com/ servlet/ dcms?c=business&rkey=437 (last visited July 15, 2008).
265. Travelers, Hybrid Travelers, http://www.hybridtravelers.com (last visited July 15, 2008).
266. MILLS, supra note 9, at 14.
267. Id.
268. FIREMAN'S FUND, HOW GOING GREEN CAN KEEP YOU IN THE BLACK (2007) (promotional leaflet).
269. Fireman's Fund, supra note 157.
270. The U.S. Green Building Council notes that its "Leadership in Energy and Environmental Design (LEED) Green Building Rating System™ encourages and accelerates [the] global adoption of sustainable green building and development practices through the creation and implementation of universally understood and accepted tools and performance criteria." U.S. Green Building Council, What Is LEED?, available at http://www.usgbc.org/ DisplayPage.aspx?CMSPageID=222 (last visited July 15, 2008).
271. C. Bradley Cronk, The Case the Business Builds for Building Green, REAL ESTATE WEEKLY (May 9, 2007), available at hnp://findarticles.com/p/articles/mi_m3601/is_39_53/ai_nl9155525.
272. According to the Building Commissioning Association, a trade association, "[b]uilding commissioning provides documented confirmation that building systems function according to criteria set forth in the project documents to satisfy the owner's operational needs. Commissioning existing systems may require developing new functional criteria to address the owner's current requirements for system performance." Building Commissioning Association Homepage, http://www.bcxa.org (last visited July 15, 2008).
273. E-mail communication from Stephen Bushnell to Sean Hecht (May 8, 2008) (on file with the author).
274. Id.
275. Id.
276. See Letter From Robert Detlefsen, supra note 128.
277. But see MILLS, supra note 9, at 14 (noting a "halo effect" whereby "adopters of climate-change mitigation technologies are viewed as low-risk customers," underscoring the correlation between "behaviors that are risk-averse with those that are environmentally responsive").
278. A loss leader is "[a] product or service sold at a substantial discount in order to generate additional sales." Loss Leader, lNVESTOR WORDS.COM, http://www.investorwords.com/2898/ loss_leader.html (last visited July 11, 2008).
279. Examples of such lawsuits include Connecticut v. Am. Elec. Power Co., 406 F. Supp. 2d 265 (S.D.N.Y. 2005)
280. and California v. Gen. Motors Corp., No. C06-05735 MJJ, 2007 WL 2726871 (N.D. Cal. Sept. 17, 2007), both of which involve allegations that major greenhouse gas emitters are liable to various U.S. states under a nuisance theory for the impacts of climate change on those states.
281. While neither of these lawsuits was successful in the trial court, both are currently on appeal. Another pending case that makes similar allegations is Native Village of Kivalina v. ExxonMobil Corp., No. 4:08-CV-01138-SBA (N.D. Ca.).
282. The plaintiffs in Kivalina have included a cause of action for civil conspiracy, raising distinct legal and factual issues from those rejected by the district courts in the other two cases cited above.
283. See Complaint at 47, Native Village of Kivalina, No. 4:08-CV-01138-SBA, available at http://www.climatelaw.org/ cases/country/us/kivalina/Kivalina%20Complaint.pdf. It is by no means clear that these causes of action will ultimately be rejected by courts. And even if these lawsuits and other similar cases are ultimately dismissed, it will likely be years before the relevant legal doctrines are finally resolved. In the meantime, the potential for defense costs in these cases is still significant.
284. See supra note 90 and accompanying text.
285. See Ross, Mills & Hecht, supra note 81, at 274-99, for a comprehensive discussion of climate change-related liability insurance risks.
286. Some of these risks are discussed supra notes 81-91 and accompanying text.
287. Id. at 314-16.
288. 174- MILLS, supra note 9, at 13.
289. See id.;
290. cf. Daniel A. Farber, Adapting to Climate Change: Who Should Pay?, 23 J. LAND USE & ENVTL. L 1, 26-36 (2007) (discussing various alternative means of allocating costs of adapting to climate change and tentatively favoring targeting high emitters of greenhouse gases as a significant source of compensation, whether through litigation or through an alternative compensation scheme).
291. For a comprehensive discussion of pay-as-you-drive (PAYD) insurance availability and costs and benefits, as well as an analysis of means to provide governmental incentives to offer PAYD, see Megan Hinkle, Can Auto insurance Go Green? Regulatory Options for Mile-Based Premiums (Jan. 11, 2008) (unpublished manuscript, on file with the author).
292. SIMON MUI, JEFF ALSON, BENJAMIN ELLIES & DAVID GANSS, A WEDGE ANALYSIS OF THE U.S. TRANSPORTATION SECTOR 17-18 (2007);
293. PROGRESSIVE INSURANCE, TEXAS MILEAGE STUDY: RELATIONSHIP BETWEEN ANNUAL MILEAGE AND INSURANCE LOSSES (2005), available at http://ww.nctcog.org/trans/air/programs/payd/PhaseI.pdf (finding a direct linear relationship between miles driven and insurance losses).
294. Hinkle, supra note 176, at 7-9.
295. TODD LITMAN, PAY-AS-YOU- DRIVE PRICING IN BRITISH COLUMBIA 7 (2007).
296. MUI, ALSON, ELLIES & GANSS, supra note 177, at 17-18.
297. Hinkle, supra note 176, at 16-18 (noting the lack of market-wide availability of PAYD insurance in the U.S. despite laws explicitly allowing the product in some states). Hinkle discusses the few pilot programs that have been attempted in the United States, notably that of Progressive Insurance, and notes that "[t]hough the availability of non-pilot mile-based policies in the United States is limited, at least nineteen companies across Europe, Asia, and Africa offer mile-based policies".
298. Id. at 18. GMAC is also offering such a product. The company recently began to offer a PAYD insurance pilot program to customers who own GM vehicles with a OnStar computerized vehicle diagnostic system installed. OnStar, Auto Insurance First: Technology Lets Americans Who Drive Less, Pay Less, available at http://www.onstar.com/us_english/jsp/new_at_onstar/ low_mileage.jsp (last visited July 15, 2008).
299. Aaron S. Edlin, Per-Mile Premiums for Auto Insurance, m, ECONOMICS FOR AN IMPERFECT WORLD: ESSAYS IN HONOR OF JOSEPH E. STIGLITZ 53 (Richard Amott et al. eds., 2003). Many insurers use crude categorizations of miles driven in calculating premiums, such as differentiating between drivers who drive more or less than a particular distance each year.
300. Id. at 73.
301. Hinkle, supra note 176, at 12-14. The OnStar program is an example of the "black box" approach.
302. OnStar, supra note 181. This approach can be criticized based on privacy concerns.
303. See Hinkle, supra note 176, at 14-15. GMAC appears to be aware of these concerns, and its promotional material states that "no additional data is gathered or used for any purpose other than to help manage transportation costs."
304. OnStar, supra note 181.
305. Edlin, supra note 182, at 73.
306. Id. at 72.
307. See Hinkle, supra note 176, at 19-32, for a discussion of various alternative means that state regulators, or a new federal regulatory regime, could employ to remove barriers to PAYD implementation or to require such implementation.
308. Insurance Journal, California Considering Pay-As-You-Drive Auto Insurance, available at http://www.insurancejournal.com/news/west/2008/ 06/23/91252.htm (last visited July 15, 2008) (stating that "the [California] Department [of Insurance] intends to adopt regulations with the goal of making PAYD insurance widely available in California and to encourage participation").
309. Kunreuther, supra note 18, at 180.
310. Robert T. Ward, Celine Herweijer, Nicola Patmore & Robert Muir-Wood, The Role of Insurers in Promoting Adaptation to the Impacts of Climate Change, 33 GENEVA PAPERS 133, 135-136 ( 2008).
311. Kunreuther, supra note 18, at 174-76, 180-81.
312. Kunreuther & Pauly, supra note 136, at 110.
313. Maynard, supra note 1, at 144.
314. Id.
315. MILLS, supra note 9, at 18.
316. Emmanuel Leblanc, Challenges of the Renewable Energy Industry Generate New Demands for Risk Advisory: How to Value an Insurance Package From a Financing Perspective?, 33 GENEVA PAPERS 147, 148-49 (2008).
317. Maynard, supra note 1, at 143.
318. Guzy, supra note 80, at 558;
319. Michael Wara, Measuring the Clean Development Mechanism's Performance and Potential, 55 UCLA L. REV. 1759 (2008).
320. See Wara, supra note 198;
321. Leblanc, supra note 196, at 150;
322. see also Ins. Bus. Rev., Zurich Provides Political Risk Insurance for Carbon Credit Projects (February 21, 2008), available at http://www.insurance-business-review.com/article_news.asp?guid= 7A182C83-34FD-4EEA-9466-0D3716 F16D6A (discussing the Zurich Financial Service Group's new product that "helps to protect against risk of host government actions that might prevent an investor from receiving benefits associated with emission credits generated").
323. Leblanc, supra note 196, at 150.
324. Id.
325. Id.
326. These projects "run the risk that they will not deliver the greenhouse gas reduction they were expected to; and if CDM credits have been sold there is a liability to deliver. This can discourage capital providers supporting such products. Swiss Re has teamed up with RNK capital to provide insurance against this risk, a good example of using [the insurance industry's] core industry skill to promote mitigation." Id. at 143. Zurich Financial Services Group provides similar protection against governmental actions that may put a project at risk.
327. Supra note 199.
328. 204- See McCarran-Ferguson Act, 15 U.S.C § 1012 (2000) (allowing the regulation of insurance practices by "the several states").
329. Susan Randall, Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners, 26 FLA. ST. U. L. REV. 625, 629 (1999).
330. For a comprehensive discussion of state insurance regulation in the context of catastrophic risk, see WHARTON RISK MANAGEMENT AND DECISION PROCESSES CENTER, supra note 24, at 32-48.
331. Some commentators believe that foreign insurance regulation may be more well-adapted than U.S. regulation to the task of assisting insurers with overcoming obstacles to addressing climate change risks. See, e.g., ROBERT W. KLEIN & SHAUN WANG, CATASTROPHE RISK FINANCING IN THE US AND THE EU: A COMPARATIVE ANALYSIS OF ALTERNATIVE REGULATORY APPROACHES (2007). Insurance regulators in other countries often take a different approach to regulation than U.S. regulators. A discussion of non-U.S. insurance regulation is outside die scope of this Article. For in-depth discussions of Europe's approach to solvency regulation
332. see generally Martin Eling, Hato Schmeiser & Joan T. Schmidt, The Solvency II Review Process: Overview and Critical Analysis, 10 RISK MGMT. & INS. REV. 69 (2007);
333. Michael Butt, insurance, Finance, Solvency II and Financial Market Interaction, 32 GENEVA PAPERS 42 (2007).
334. ALLIANZ GROUP & WWF, supra note 128, at 31;
335. see also Letter From Robert Detlefsen, supra note 128 (criticizing insurance regulators for impeding insurers' ability to price according to risk).
336. Guzy, supra note 80, at 558.
337. See Nat'l Ass'n of Ins. Comm'rs Climate Change & Global Warming (EX) Task Force, The Potential Impacts of Climate Change on Insurance Regulation (May 28, 2008), available at http://www.climateandinsurance. org/news/080528_NAICdisclosure.pdf.
338. Id.;
339. see Nat'l Ass'n of Ins. Comm'rs, Climate Change Study Focuses on Insurance Impact (June 2, 2008), available at http://www.naic.org/ Releases/2008_docs/climate_study.htm [hereinafter NAIC Impact].
340. Id. Notably, the letter, drafted by a committee of state insurance regulators, focuses more concretely on actions that the federal government, rather than state governments, can take to improve insurers' ability to deal with climate change.
341. NAIC Climate Change and Global Warming (EX) Task Force, Climate Risk Disclosure Proposal (May 28, 2008), available at http://www. climateandinsurance.org/news/080604NAIC.pdf.
342. NAIC Impacts, supra note 210.
343. Letter From Robert Detlefsen, supra note 128 ("[U]sing disclosure requirements to pressure insurance companies into adopting a particular agenda for combating global warming is a flawed approach to addressing the challenges proposed by large-scale catastrophic risk.... [Instead, the white paper should examine] the role that regulation often plays in distorting insurance markets and thereby increasing the risk of property loss and human suffering in disaster-prone regions.").
344. See, e.g., Grace & Klein, supra note 128,at28.
345. KLEIN & WANG, supra note 206, at 27-44.
346. NAT'L ASS'N OF INS. COMM'RS, STATE REGULATION: BUILT TO LAST 408 (2007), available at http://www.naic.org/documents/about_2007_annual_report.pdf.
347. See Kunreuther & Michel-Kerjan, supra note 6, at 1842 ("[H]ow should we deal with individuals who have been living in high-hazard areas for some time but cannot afford to pay for higher insurance premiums that reflect the new risk assessment?").
348. Evan Mills, The Role of U.S. Insurance Regulators in Responding to Climate Change, 26 UCLA J. ENVTL. L. & POL'Y 45 (2008).
349. See supra note 151.
350. Ins. Info. Inst., How Can I Assess the Financial Strength of an Insurance Company?, http://www.iii.org/individuals/life/buying/strength (last visited July 15, 2008).
351. See Michel-Kerjan & Morlaye, supra note 112, at 153, 168 ("Rating agencies' influence in the insurance market has soared tremendously.").
352. WHARTON RISK MGMT. & DECISION PROCESSES CTR., supra note 24, at 152-53 (discussing rating agencies' increased recent attention to catastrophe risk in insurers' portfolios).
353. Carbon Disclosure Project, Atout the Carbon Disclosure Project, http://www.cdproject.net (last visited May 8, 2008).
354. Id.
355. Id.
356. MILLS, supra note 9 ("With important exceptions, the U.S. responses tended to be superficial compared to those of their peers in other countries, and a larger share of responding U.S. companies declined to have their responses made public").
357. According to its website, "Ceres (pronounced "series") is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change." Ceres, About Us, http://www.ceres.org/NETOOMMUN (last visited July 15, 2008).
358. Its mission is "integrating sustainability into capital markets for the health of the planet and its people." Id.
359. Investor Network on Climate Risk, Investor Network on Climate Risk Action Plan (February 2008), http://www.ceres.org/NETCOMMUNITY/Document.Doc?id=279.
360. Investor Network on Climate Risk, U.S. and European Investors Tackle Climate Change Risks and Opportunities, http://www.incr.com/NETCOMMUNITY/Page. aspx?pid=839&srcid=235 (last visited June 16, 2008).
361. Investor Network on Climate Risk, supra note 229.
362. For an important recent study of this phenomenon, see Michael P. Vandenbergh, The Private Life of Public Law, 105 COLUM. L. REV. 2029 (2005) [hereinafter Vandenbergh, The Private Life of Public Law].
363. See also Michael P. Vandenbergh, The New Wal-Mart Effect: The Role of Private Contracting m Global Governance, 54 UCLA L. REV. 913 (2007) [hereinafter Vandenbergh, The New Wal-Mart Effect], for an empirical study of the role of supply-chain contracting in environmental governance.
364. See CLIMATEWISE, supra note 1, at 10-12;
365. Mills, supra note 6.
366. Vandenbergh, The New Wal-Mart Effect, supra note 232, at 943.
367. See id. at 919-21.
368. Maynard, supra note 1, at 140-46.
369. Michael Vandenbergh, The Private Life of Public Law, supra note 232, at 2063.
370. Id.
371. Katzman, supra note 104, at 82.
372. Vandenbergh, The New Wal-Mart Effect, supra note 232, at 943-44.
373. Id.
374. Id. at 944.
375. Id. at 956-59. Vandenbergh discusses and synthesizes alternative models of accountability to arrive at these criteria.
376. See discussion supra Parts V.A and V.B.
377. Ross, Mills & Hecht, supra note 81, at 266-69.
378. See discussion supra Part V.C.
379. See ERNST & YOUNG, supra note 5.
380. See Letter From Robert Detlefsen, supra note 128 ("In our view, using disclosure requirements to pressure insurance companies into adopting a particular agenda for combating global warming is a flawed approach to addressing the challenges posed by large-scale catastrophe risk.");
381. Letter From David Snyder, Vice President and Assistant General Counsel, American Insurance Association, to Mike Kreidler, Chair, Climate Change and Global Warming (EX) Task Force, National Association of Insurance Commissioners (NAIC), Response to Draft NAIC Climate Risk Disclosure Proposal 6 (Jan. 11, 2008), available at http://www.naic.org/documents/ committees_ex_climate_comments_from_AIA.pdf ("Rather than taking further action on fashioning its own, and potentially duplicative and burdensome disclosure process, AIA recommends that the NAIC continue to closely monitor voluntary and SEC-related disclosures by insurers before deciding whether further actions are necessary.").