Insure a sustainable future

Arguments abound as to how best to bring common sense to our decision-making regarding the environment.  Some recommend tighter government regulation, while others call for market-based solutions.  There are advocates for more transparency, increased valuation of natural resources, and "seals of approval" of all shapes and sizes. This week we heard some disheartening news from an industry that might just create the tipping point needed to finally get us to make better decisions.

What allows a chemical company to put people's lives at risk without fear of bankruptcy?

What allows financial institutions to gamble with other people's money with only passing regard for the risks?

The same thing that allows me to have a teenage driver without fear that one accident will put me in the poorhouse or deprive me of the transportation necessary to work....

Insurance.

This past week, I read a story about how the insurance industry has deemed portions of the planet uninsurable against risks from climate change.  Recent concerns about record payouts from the last couple of storm seasons in America have raised questions about premium hikes for those who look to rebuild in areas hit by major storms.

For years, those in the middle of the environmental debate have sought mechanisms to include all the costs associated with damaging industries into the marketplace.  This line of thinking supposes that industries that have traditionally profited by abusing the environment or human health would either make changes or go away when forced to price all their effects into the cost of doing business.  We may have reached the point where the insurance industry can accomplish what human politics would never allow to happen. 

It starts with coastal residents that have large ticket homes being denied flood or homeowners insurance.  This may render properties unsellable, creating a mirror of traditional urban blight.  In the next step, automobile insurance for heavy fossil fuel consumers outpaces that of better performing models (or disappears altogether) adding another component to the individual cost of car ownership.  It could culminate in an insurance product that governments and corporations pay premiums into based upon their contribution to the degradation of natural capital.  These premiums would fund reinsurance to the industry to hedge the risk of large payouts, meanwhile providing incentive for governments and corporations to make changes so as to improve their bottom line.

Much work remains to create this possible reality.  However, unlike erecting walls against storm surge, relocating cities and infrastructure, and changing the functions of our watersheds, we can make this simple change to a man-made financial system quickly.  Hopefully it is quick enough to be a part of he solution and not just part of assigning blame.