sectoral economic costs and benefits of ghg mitigation - IPCC

Households and Services
3.2 Technical adjustment by clients
Greenhouse gas reduction measures introduced by the government and measures taken
voluntarily by companies and private households will lead to more or less radical changes in the
technology used by clients of the insurance industry, the way in which they are organised and
their behaviour. The extent to which those changes will lead to changes in risks, in the sense of
the risks covered by insurance policies, is the focus of the following analysis.
The following statements should be viewed as reasonably plausible hypotheses. They are not
based on any actuarial analysis. For technologies already in use and some that are being
developed, and which may have greater applications as a result of greenhouse gas mitigation,
actuarial evaluation should, in principle, be possible.
Sections number 3.2.1 up to 3.2.4 look at examples of expected changes in technology, in
methods of organisation and/or changes in behaviour as a result of GHG mitigation and looks at
the effect this has on the number of objects insured, the risk of loss and the corresponding
premium levels.
Let us first establish that decreasing premiums does not necessarily indicate falling profitability
of the insurance company and vice versa. It will depend on the characteristics of the market
whether or not a lower risk as a result of GHG mitigation will be passed on to the customer in the
form of lower prices for insurance cover. Thus, GHG mitigation will not determine the costs and
profits of the insurance industry as much as market conditions will.
3.2.1 Vehicle insurance
In Germany, vehicle insurance is the biggest branch of non-life insurance. The income on
premiums is almost Euro 20 bill and represents roughly 40% of non-life premiums. (GDV, 1998)
Motorized vehicles are also an important factor in the climate change discussion given that
emissions from this source, unlike other sources in Germany, are still increasing.
Assuming that oil-based fossil fuels will continue to be used to run personal cars, we can expect
to see smaller, lighter, and more fuel-efficient cars with a lower maximum speed. Such vehicles
cause significantly less damage, and thus have much lower premiums, than mid-range or big
saloon models. The difference in the insurance premium for a small, fuel-efficient car and a
saloon model can be as much as 50%. In Germany it is also normal market practice to include the
distance covered per year in the calculation of the premium. If more travel is done by bus and
train in the future that will also lead to a fall in risks and premiums. Whether, in addition, there
will also be a drop in the number of vehicles and thus the number of objects to be insured is not
certain.
3.2.2. Claims resulting from handling petroleum
Just as the volume of petroleum that must be extracted, transported, stored and used decreases as
a result of greenhouse gas mitigation, the number of claims relating to handling of oil also falls -
at least in comparison to the business-as-usual scenario if not in absolute values too. This applies
to accidents when transporting oil by sea tanker or by lorry as well as to the pollution of soil and
groundwater by oil leaked from tanks or spilled when storage tanks are filled. The number of
means of transport that are insured for the transport of fossil fuels will decrease as will the
number of journeys made which means that the income from premiums from this branch will
fall. (Oils produced from renewable energies are much more biodegradable and therefore cause
much less damage.)
If oil is widely replaced by gases that have lower CO 2 content, then the danger of coastal, soil
and water pollution is replaced by a higher risk of explosions. (Although, gas ovens used in
private households in the USA cause far fewer fires than electric ovens do.)
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