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Insurance companies should collect a carbon levy
September 19, 2017
Governments juggle too many interests to drive global action on climate change. But the insurance industry is ideally placed. With annual premiums amounting to between US$4 trillion and $5 trillion, or about 6% of world gross domestic product (GDP), the industry's future profitability hinges on limiting the risks of climate change.
Insurers are exposed to the consequences. Before Hurricane Harvey, which is likely to cost more than $100 billion, in 2017 the United States experienced six storms, two floods and one freeze that each cost more than $1 billion in damages. Severe floods, landslides and droughts have struck countries in the Americas and Africa, as well as India, China, Sri Lanka, Bangladesh, Thailand and Indonesia (www.reliefweb.int).
The costs of climate-related damage will grow as the world warms. For the United States, the impact on agriculture, crime, storms, energy, human mortality and labour will cost around 1% of GDP for each 1 °C increase in global average temperature1. If a similar picture holds worldwide, each 1 °C rise will cause about $1 trillion of extra damage per year. For present temperatures above the 1980–2010 average, this equates to about 0.4% of world GDP — damages that are growing at around 0.1–0.2% per decade.