Storm warnings: climate change hits the insurance industry.

Staggered by an unprecedented series of hurricanes, floods, and fires, insurers are weighing the possibility that these catastrophes are the first real effects of human-induced climate change--and that the worst is yet to come. Their response could pit them squarely against the giant fossil fuel industry in the battle over reducing carbon emissions.

During 1993, a series of headlines in major newspapers described an insurance industry in crisis, as weather-related disasters led to billions of dollars in insurance claims. "Storm Loss New Blow to Insurers," proclaimed The New York Times. "As Insurance Costs from Hurricanes Soar, Higher Rates Loom," warned The Wall Street Journal. And London's Financial Times offered a succinct explanation: "Global Warming Makes Insurers Sweat."

The headlines were hardly an exaggeration. Between September 1989 and September 1994, the world experienced at least 15 separate weather-related disasters in which financial losses exceeded $1 billion. Among the events that created the greatest alarms were Hurricane Andrew, the most damaging storm in U.S. history; several huge cyclonic storms in Asia; a series of ravaging wind storms in northern Europe; two enormously destructive fires in California; and the worst flood ever seen on the Mississippi River.

The very term "natural disaster" suggests that this litany of financial losses should be written off as a bizarre coincidence we can do little about. But a growing body of scientists, as well as experts within the insurance industry itself, are beginning to consider the possibility that human society is not only a victim of climatic events, but a causal agent as well.

In some ways this is inarguable. Coastal housing developments, levees that alter flood plains, and fire suppression programs that allow the buildup of combustible materials all contribute to the frequency or severity of weather-related disasters. But such actions merely increase vulnerability to incidents of extreme weather, once they occur. On a more profound level, scientific evidence now points to the possibility that human-induced changes to the atmosphere may increase the frequency or severity of the incidents themselves--including hurricanes, droughts, and wild fires.

It is too early to know for sure if the recent spate of disasters is related to the ongoing buildup of greenhouse gases in the atmosphere. But people in the insurance industry are looking at the question closely, since their entire business is founded on historically based probability calculations that would have to be overhauled if insurers are no longer able to assume that weather in the future will be similar to past weather. Indeed, a suddenly less stable, more extreme climate could make the world's insurance companies as vulnerable as the flimsiest Caribbean bungalow.

Franklin Nutter, President of the Reinsurance Association of America, sums up his industry's dilemma this way: "The insurance business is first in line to be affected by climate change...it could bankrupt the industry."

The entry of the $1.4 trillion-a-year insurance industry into the debate over global climate change could mark a watershed. Even as national governments and international agencies have begun to focus on strategies to reduce greenhouse gas emissions, public discussions have been shaped in part by the voices of skeptics who argue that because we cannot fully predict the timing or magnitude of climate change, policy responses should be delayed.

To insurance executives, however, this is a strange argument, since all of their business--indeed, its very nature--involves making important investment decisions in the face of large uncertainties. Indeed, they have effective tools for quantifying the financial risk involved in possible future disasters--even if the probability of a particular event is small. To an insurance executive, the very uncertainties associated with climate change may be the best reason for taking it seriously.

STORM WARNING

During the past few years, the world's television screens have been filled with the spectacle of one natural catastrophe after another. A collection of press reports compiled by the environmental group Greenpeace from six continents between 1990 and 1994 displays a remarkable litany of the highest floods, longest droughts, most severe wild fires, and worst heat waves ever recorded. A December 1993 report in The New York Times science section summed up many people's' gut reaction in simple terms: "This Year's Weather: It Really Was Strange." That feeling continued in 1994, which witnessed the hottest summer in some parts of Europe since the eighteenth century, and severe droughts throughout East Asia.

Tropical hurricanes, cyclones, and typhoons--as they are variously called in different parts of the world--are among the most widely destructive and life-threatening of natural disasters. These large, swirling storms, which have their genesis in warm tropical waters--in areas such as the Caribbean, South Pacific, and Indian Ocean--can pack winds of between 120 and 300 kilometers per hour, and cause storm surges that inundate low-lying coastal areas.

Since the late eighties, hurricanes have struck various parts of the world with alarming frequency. In May 1991, for example, a "cyclone" with winds of 270 kilometers per hour struck Bangladesh, flooding vast areas of the country's fiat coastal plain. An estimated 139,000 people were killed, more than a million homes were damaged or destroyed, and financial losses were put at $1.8 billion--nearly 10 percent of Bangladesh's annual GNP.

Four months later, southwest Japan was struck by the sixth strongest storm ever recorded by the Japan Meteorological Agency. Although it barely missed some of Honshu's most densely populated areas, Typhoon Mireille damaged thousands of homes and yielded nearly $5 billion in financial losses.

Within the next year, at least five devastating tropical storms caused billion-dollar-plus losses in locations ranging from China to Pakistan and Hawaii, where Hurricane Iniki, with sustained winds of 210 kilometers per hour, destroyed 10,000 homes and 70 hotels. Total losses: $2.1 billion. Most recently, in August 1994, China was hit by Typhoon Fred, which killed 700 people and caused $1.6 billion in damage.

Even amid all these storms, Hurricane Andrew was--from a financial standpoint--the tempest no one will forget. Striking south Florida on August 24, 1992, Andrew packed sustained winds of 230 kilometers (145 miles) per hour and was the third most powerful hurricane to make landfall in the United States in the twentieth century. Missing the region's largest urban centers, Andrew still virtually flattened some 430 square kilometers of Dade County Florida, destroying 85,000 homes and leaving almost 300,000 people homeless.

Total losses from Andrew were estimated at $25 billion, equivalent to the combined losses of the three most costly storms to strike the country previously. Only the warnings of the National Hurricane Center (which was directly hit by the storm) and local officials kept the death toll to just 55.

Tropical storms were not the only natural disasters to cause extensive damage in the past few years. In January and February 1990, for example, northern Europe was hit by an extraordinary series of four devastating windstorms that together caused more than $10 billion in damage. More than 50 million cubic meters of harvestable timber was destroyed in Germany, Austria, Czechoslovakia, Switzerland, and France.

In other parts of the world, floods caused even greater damage. In 1992, a flood in Pakistan killed 5,000, and one in India killed 1,400. In 1994, China was hit by a series of floods that killed 1,600 people and racked up $6 billion in damages. In the United States, the "flood of the century" in 1993 covered 41,000 square kilometers of Mississippi Valley farmland in nine states--more than twice the area of the Netherlands--and caused $12 billion in damage.

Severe droughts and wild fires have also become common in recent years. California, Spain, Romania, and Queensland, Australia, for example, recently experienced their worst droughts in a century, leading to extensive water rationing. A drought-related firestorm in the hills above Oakland, California in 1991 destroyed hundreds of homes and led to insurance claims of $1.7 billion; fires near Los Angeles in 1993 had similar results. Italy too, had severe forest fires in 1993. And just last summer, fires throughout the western United States destroyed enough timber to send paper prices soaring.

THE CLAIMS MOUNT

This series of climate extremes over the past few years has given the insurance industry an unprecedented shellacking. In 1992, total financial losses from weather-related disasters reached a record $23 billion. Resulting claims wreaked havoc in the insurance business.

For many companies, Hurricane Andrew was far and away the worst disaster so far, and provoked a profound reappraisal of their business. The Prudential Insurance Company paid out claims of $1.1 billion, Allstate paid $2.5 billion, and State Farm $3.5 billion. Within months, eight insurance companies serving Florida had collapsed, and many others threatened to pull out of the state unless they could be protected from such debacles in the future.

All told, the storm's insurance losses reached $16 billion, or 16 times the total claims for the Loma Prieta earthquake that struck the San Francisco area in 1989. "Insurers used to see Florida as the land of milk and honey and ignored the risk," said Florida Insurance Department spokesperson Jill Chamberlain. "Now, there is fear and trembling."

But while Andrew stunned the insurers, it was only one of a long series of weather-related setbacks. In the United States, in 1993 alone, a winter storm cost $1.8 billion in insured losses, the Midwest floods cost $1 billion (despite limited availability of flood insurance), and the southern California wildfires cost $950 million. Following Hurricane Iniki, several companies temporarily stopped writing policies in Hawaii, and some pulled out of the state altogether. A similar reaction in the Caribbean led the president of the regional insurance association, Orinthia Nesbeth, to proclaim a "state of crisis never before experienced in its history."

The Re-insurance industry, which insures the insurers, was particularly exposed to the combined effects of a dozen huge storms in North America and Northern Europe between 1990 and 1992. Lloyd's of London, for example, suffered losses of $4.4 billion in 1990 and 1991, forcing some 8,000 members of the giant syndicate to resign, and many into bankruptcy. In one description of the debacle, a Time magazine reporter wrote, "Lloyd's is reeling, and as the fine print catches up with them, many investors face financial ruin--down to the last cuff link."

Still, many insurance experts are concerned that they may not yet have seen the worst. Meteorologists point out that if Andrew had veered slightly, it would have run straight through Miami and then would have been on track to hit New Orleans a day later. If so, insurance losses might have doubled or tripled. The Florida Insurance Commissioner has said that if New Orleans had been struck, the U.S. insurance industry could have been wiped out.

A more northerly hurricane track could also affect the rapidly developing coastal Carolinas or the even more densely settled areas of New York and New England--as once happened in the thirties, for example. Maurice Greenberg, chairman of American International Group, an insurance company that had hurricane-related claims of $150 million in 1992, told The New York Times, "If Andrew had hit the south coast of Long Island, you would no longer have the strongest insurance industry [in the world], you would have the longest insurance industry--some companies would be flat on their backs."

A CLIMATE OF EXTREMES

Among many scientists, there is growing concern that the world may have entered a period of dangerous climatic extremes. Although we are still in the early stages of human alteration of the atmosphere--greenhouse gas concentrations are rising at a record pace--computerized climate models suggest that these gases are likely to warm the atmosphere in the decades ahead, and may lead to a range of extreme climatic events. Droughts, floods, hurricanes, and fires, for example, could all become more common. Tim Gibson, a meteorologist at the University of Melbourne, speaks for many atmospheric scientists when he says, "It is very difficult to find sustainable evidence that something is getting more severe or erratic, but we believe the greenhouse effect would cause these changes." Indeed, some scientists believe they already are.

In an age when many people live in air-conditioned homes and eat fresh food trucked in from farms located thousands of kilometers away, it is easy to lose awareness of the degree to which we are dependent on a narrowly prescribed range of climatic conditions. People generally live in areas where water is adequate if not abundant, and their nutritional and materials needs are met via agricultural, forestry, and fishery systems that require particular conditions of temperature, rainfall, and humidity.

Indeed, the living patterns and technologies that were built up over centuries to meet human needs have been carefully adapted to the climate. While we can sometimes cope with the effects of an isolated drought, heat wave, or flood by bringing in relief supplies of food or water from other areas, simultaneous disruptions in several regions could be unmanageable.

The chief concern about global warming, therefore, is not the increase in average temperatures, TABULAR DATA OMITTED but the possibility that in the course of heating up, the atmospheric and oceanic systems that regulate the world's weather could be suddenly and dramatically disrupted. Areas that now receive ample rainfall might become deserts, regions now safe from catastrophic wind storms and floods could suddenly be vulnerable, and oceanic currents that now moderate both marine and continental climates might unexpectedly shift course.

One of the most serious consequences of a disrupted climate could be more frequent and severe droughts. From China to the Middle East and North America, water shortages are already impinging on economic development in many regions. In some areas, the availability of water is the main constraint on agricultural production, and the total area of cropland that is irrigated has begun to level off as rivers and underground aquifers are depleted. At the same time, rapidly growing cities are competing for water in many countries.

Although a warmer world climate will tend to boost both precipitation and evaporation, atmospheric models suggest that the regional effects would be extremely uneven, and that some areas that now receive plentiful rainfall might become substantially drier. As Sandra Postel of the Global Water Policy Project notes, "Both water and food security will be more elusive for the next generation without rapid action to stabilize atmospheric greenhouse gases."

Interior areas of China and the North American Midwest, for example, both of which are important food-growing areas, are projected to receive less average rainfall and to suffer more frequent droughts. At the same time, more frequent summer heat waves would boost evaporation, drying out crops even more, while impeding pollination. Although some optimists argue that farmers could just move their crops farther north, most of these areas are either already cropped or lack the rich soils and other conditions needed to support bumper crops. Moreover, drought-resistant varieties often have lower yields.

Increased frequency of droughts and heat waves could have other adverse effects. Most forests are adapted to particular regimes of moisture and temperature, and climate change could put vast areas of timber in jeopardy. Over time, the trees would become more susceptible to insect infestation or disease--a phenomenon already apparent in the Appalachian region of North America and the Alpine forests of Europe, though to what extent these ravages are due to climatic change as opposed to acid rain or other causes is unclear. In any case, sick or dying forests become more vulnerable to catastrophic wild fires, so the loss of forest cover can occur quite suddenly. While new tree species could in theory spring up to replace the dead forests, it would be difficult for any new ecosystem to get established if the climate continues to change rapidly, or becomes more erratic.

A warming of the world's atmosphere could also increase the frequency and severity of major storms, according to some climate experts. A scientific assessment done for the German insurance company Munich Re notes, "A warmer atmosphere and warmer seas result in greater exchange of energy and add momentum to the vertical exchange processes so crucial to the development of tropical cyclones, tornadoes, thunderstorms, and hailstorms."

Hurricanes and typhoons, for example, can only form over tropical waters that are at a temperature of at least 26 degrees C. Meteorologist Kerry Emanual of the Massachusetts Institute of Technology estimates that the 3 to 4 degree Celsius rise in sea temperatures projected by some atmospheric models could increase the destructive potential of hurricanes by 50 percent and cause sustained storm winds as high as 350 kilometers (220 miles) per hour.

Donald Friedman, former director of the Natural Hazards Research Program for the Travelers Insurance Company, calculates that such a warming would lengthen the hurricane season in North America by two months or more, and allow the storms to move farther north before petering out. In future decades, it might be as common for New York or Boston to be pounded by a devastating hurricane as it now is for Galveston or Miami--boosting average annual hurricane losses for the U.S. insurance industry by 40 percent.

These losses could be further multiplied by another feature of a warming world: rising seas. Water expands as it warms, and the higher temperatures will also tend to melt the glacial ice found near the world's poles. As a result, scientists now believe that by late in the next century the oceans could rise at least half a meter above the current sea level.

Such an increase would threaten scores of coastal communities, as well as the estuaries, fresh-water aquifers, and other resources on which societies depend. In Galveston, a one-meter sea level rise would place virtually the entire city within the 100-year floodplain, and in Charleston, South Carolina, 60-percent of the city would be flooded on average every decade.

The U.S. Environmental Protection Agency estimates that the cost of protecting the U.S. coastline from rising seas over the next several decades could range from $32 to $309 billion. But many areas of the world would not be able to pay such bills. In Bangladesh, where millions of people have no choice but to live in areas vulnerable to flooding--some 300,000 people lost their lives in a 1970 typhoon--the results could be particularly devastating.

As this example indicates, developing countries are likely to be the most vulnerable to climatic extremes. Their expanding populations are often forced to live in vulnerable areas, and funds are often insufficient to provide for protection of farmland or homes or even to rapidly evacuate threatened areas. Moreover, most people in poor countries cannot afford insurance of any kind.

THE GREAT CLIMATE DEBATE

Although no scientist knows with absolute certainty whether the recent spate of natural disasters is an early warning sign of a changing climate, increased concern about the potential for climatic extremes and their likely impact on the insurance industry has opened an important new front in the "great climate debate" that has raged since the late 1980s.

For the average citizen, the climate debate often seems hopelessly confused. One day's newspaper announces that the world just experienced the warmest year ever recorded, and the next day says that in North America, the last year was only about average. On talk shows, "experts" endlessly debate the question of climate change: one claiming that it is the greatest threat facing humanity, and the other saying that it is something trumped up by tree-hugging scientists and U.N. bureaucrats looking to expand their mandate.

Although most scientists endorse the official U.N. projection of a likely warming of global temperatures, scientific dissenters have emphasized the remaining uncertainties, and said that until these are removed, the world should avoid taking serious steps to reduce greenhouse gas emissions. Patrick Michaels of the University of Virginia, for example, argues that the climate record shows a slower rate of warming than the models suggest, that increasing cloud cover may mitigate the effects of greenhouse gases, and that even if the climate were to change, the effects would be manageable.

Such arguments have caused policymakers to hesitate. Consequently, of the 159 nations that signed the Framework Convention on Climate Change at the Earth Summit in 1992, few have come up with national action plans that would significantly reduce emissions. Meanwhile, emissions--and atmospheric concentrations--of carbon dioxide continue to mount.

Getting to the bottom of the uncertainty debate and better understanding climatic extremes is therefore central to breaking the impasse on climate policy. Even critics of the scientific consensus do not claim that they know for sure that the world will not experience a dangerous warming if we go on adding greenhouse gases to the atmosphere. So, the central question--whether we should continue waiting until we do know with certainty how the climate will change before taking action--is as much financial and philosophical as it is scientific.

Although the idea of making decisions based on such uncertainty may seem problematic, it is important to remember that few political decisions even on issues such as whether to go to war--are based on complete fore-knowledge of the future. And for at least one business group, probabilistic assessments of the future are the basis on which billion-dollar decisions are regularly made. That group is the actuaries and executives who run the world's insurance companies.

Insurance is by its nature a game of chance. Actuaries figure out what the odds are of a given house burning down--one in 10,000, say--and then charge just enough for fire insurance so that the premiums on 10,000 homes, and the resulting investment income, will pay for losses on the one that burns, with enough left over for overhead costs and profits.

For an insurance actuary, then, the fact that scientists cannot predict with certainty how the climate will change is neither particularly unusual nor a reason for delaying action. Future disasters are always uncertain, and as long as actuaries can assign a rough probability to a potential calamity and estimate the magnitude of potential damages, then they have a basis for taking action. To the insurance industry, the idea that one should only assign dollar values to things that are certain is nonsensical.

A growing number of climate scientists are addressing the issue in similar terms. The U.N.'s International Panel on Climate Change (IPCC), for example, acknowledges the uncertainties in current climate models, and its reports include a range of scenarios. Those uncertainties cut both ways, however: clouds could slow warming, while heat-induced release of methane trapped in the northern Tundra could cause global warming to proceed more rapidly.

Similarly, the scientific models on which the original agreements to protect the ozone layer were based turned out to be inadequate, failing for example to predict the crucial ozone hole over Antarctica. Ozone depletion turned out to be a more severe problem than most nations thought, and because the initial responses were modest, the later ones had to be more drastic--phasing out CFC production in just a decade. In a recent report, IPCC scientists concluded that "our imperfect understanding of climate processes...could make us vulnerable to surprises."

INSURING AGAINST DISASTER

As claims mounted in the early nineties, insurance executives began to consider their vulnerability to climate change. Scientists were consulted, meetings were held, and many companies prepared internal reports on the issue. H.R. Kaufman, the General Manager of Swiss Re, one of Europe's largest insurance companies, says, "There is a significant body of scientific evidence indicating that last year's record insured loss from natural catastrophes was not a random occurrence.... Failure to act would leave the [insurance] industry and its policyholders vulnerable to truly disastrous consequences."

A growing number of insurance executives now believe that the nature of their business puts them inevitably on the front lines of the climate problem: if global warming leads to weather-related disasters, the insurance industry will be expected to absorb the resulting financial shocks. Among the insurance organizations that have held high-level meetings on the climate issue are Tokyo Marine and Fire and the British Insurance Association.

A recent report by the Reinsurances Offices Association said, "Even a cursory glance at some of the basic principles of reinsurance reveals the concern that ought to exist about the greenhouse scenario.... If ever there was a case for moving the goal post this is it."

The dilemma for insurance companies is that their rates and coverage are based on averages. In the case of weather-related coverage, they look to past climate trends and assume that over time, the frequency of catastrophes will be the same. But in a world of changing and unpredictable weather, such calculations have little value. A spokesman for Allstate says, "We purchased our catastrophe protection based on the company's historical loss record before Andrew happened....We're reassessing that protection now."

Indeed, some industry experts believe that another "bad year" or two, or even a particularly catastrophic single storm, could force a number of major companies into bankruptcy. Ake Munkhammar of Sweden's large Skandia insurance company observed, "Even if the meteorologists talk about normal variations over the centuries, a company cannot reason that way."

As a first step, many companies are reducing their exposure in coastal real estate (known as "shore-lining"), wildfire-prone regions, and valleys where floods are possible. Already, many companies appear to have cut their coverage in areas such as the Caribbean and Hawaii, creating an insurance crisis. Although this is a logical strategy for individual insurance companies, it may not suffice. Climate change is inherently unpredictable, and insurance companies will never know with complete confidence how to account for it.

There is also a real danger that insurance bankruptcies and abandonment of property protection in high-risk areas could increase the vulnerability of many communities. In the past, societies have effectively used insurance as a buffer against extreme events, a buffer that would be even more important in a world of changing climates and more frequent natural disasters.

If the insurance industry solves its vulnerability problem simply by abandoning certain forms of protection, then either tax-payers will have to bail out disaster victims, or individual citizens will be forced to pay the price--which in many cases means the loss of virtually everything they own.

THE COMING CLIMATE CONVENTION

As a business that is on the frontlines of society's most risky activities, the insurance industry has a century-long tradition of spurring important social policy changes to help reduce those risks. In the United States, for example, the industry's experience with massive fire-related claims led it to point out that stricter building codes could reduce the frequency of fires. Insurers then played a leading role in lobbying governments to adopt such codes.

Similarly, these companies have fought since the early 1970s for tougher safety standards for automobiles--often battling directly with auto industry lobbyists. The resulting requirements for crash-resistant bumpers, seatbelts, and airbags have saved tens of thousands of lives, and avoided billions of dollars in insurance losses.

With this history in mind, insurance industry leaders such as Frank Nutter of the Reinsurance Association of America now argue that insurers should take a more direct role in the climate change issue. For example, in a 1993 report, the German re-insurance company Munich Re stated, "Action is now required first and foremost from politics and business: the imminent change in our climate makes speedy, radical countermeasures unavoidable."

One useful role for the insurance industry would be to build on its advocacy of building codes, which it relies on to reduce the frequency and severity of fire, wind, and water damage. Insurance companies could, for example, encourage governments to tighten the energy efficiency codes on buildings, and so reduce carbon dioxide emissions. Some codes--such as requiring weather stripping or double-glazed windows--can both save energy and reduce the potential for short-term weather damage.

Insurance companies' investment portfolios provide additional leverage. If they were to dump some of their stocks in oil and coal companies, or actively invest some of their funds in new, less carbon-intensive energy technologies (forming a sort of climate venture fund), insurance companies could spur the development of a less threatening energy system. Such a shift would not be all that unusual; some health insurers, for example, recently sold their stock in tobacco companies, whose business is incompatible with insurance companies' interest in a healthier population.

The next step for insurance companies is an unfamiliar one--into the arena of greenhouse politics. This is turf that is at least partly occupied by the very industries that cause the greenhouse problem--the major producers and users of fossil fuels. Throughout the past five years of climate negotiations, the oil and coal lobbies have played an active role, clinging tenaciously to the argument that the world does not yet know enough about the rate or effects of global warming to invest significant sums in slowing it.

According to a statement by the National Coal Association in the United States, for example, "The issue remains shrouded in controversy, intrigue and misunderstanding.... Scientific knowledge does not justify drastic steps to restrict the use of coal and other fossil fuels." Another fossil fuel lobby, the Global Climate Coalition, stated in a 1994 report, "The cost of inaction is very speculative and remote in time0.... We run the risk of implementing inappropriate policies that later turn out to have been misguided."

Although opposed by environmental groups which argue that investments in energy conservation and tree planting can be highly cost-effective means of reducing net greenhouse emissions, the arguments of the fossil fuel lobby--often mis-characterized in the media as the voice of industry as a whole--have helped dissuade most governments and international agencies from taking serious steps to re-orient their energy policies. The Framework Convention on Climate Change, agreed to in Rio de Janeiro in 1992, includes no binding requirements on signatories, though several governments are now discussing protocols to make it tougher.

Although many industrial countries have pledged to hold their greenhouse gas emissions to the 1990 level in the year 2000, most of the climate plans developed so far are limited to voluntary programs such as increased funding of energy-saving projects and stepped up research and development. Few include the more crucial steps of reducing the large subsidies to fossil fuel burning, or levying new carbon taxes to discourage the use of those fuels. As a result, even with new plans in place, the United States, Japan, and the European Union--which together account for roughly 40 percent of the world total--all project increases in their carbon emissions during the 1990s.

The first Conference of the Parties to the Climate Convention will convene in Berlin in March 1995, and as it approaches, the need for a political breakthrough on the climate issue is becoming clear. If the huge ($1.5 trillion per year) fossil fuel industry is the only industrial lobby that actively engages in the climate battle, it is likely to prevail--and progress in addressing the global climate dilemma will continue to stall.

Few industries are capable of doing battle with the likes of the fossil fuel lobby. But the insurance industry is. On a worldwide basis, the two are of roughly comparable size--and potential political clout.

During the past year, the insurance industry has been getting strong encouragement from environmentalists such as British scientist Jeremy Leggett to enter the greenhouse fray. Leggett calls for "solidarity among the risk community"--ranging from insurers to environmental groups--and "active strategic protection of the market in which [the insurance industry] operates." In this effort, the insurance industry would have some natural allies: at recent climate negotiations, active caucuses were formed to represent two groups with an active interest in strong climate policies--small island states threatened by rising seas, and businesses with an interest in less carbon-intensive energy sources such as natural gas and renewable energy.

The worldwide insurance industry has as much to gain from a strong global climate agreement as the fossil fuel industry has to lose. And unless it more actively engages the struggle over climate policy, the insurance industry's future is likely to be stormy indeed.

Christopher Flavin is Vice President for Research and a Senior Researcher at the Worldwatch Institute. He is co-author with Nicholas Lenssen of Power Surge: Guide to the Coming Energy Revolution, published in October by W. W. Norton. In 1992, he helped found the Business Council for a Sustainable Energy Future.