As a core part of our business, we continually monitor, assess and respond to the risks and opportunities posed by changing climate conditions to provide products and services that both help our customers mitigate associated risks and are priced to meet our long-term financial objectives. We also regularly consider new insurance products and services that could be useful to our customers in addressing climate-related risks. This section introduces our approach to managing changing climate conditions, which we expand on in a detailed report that aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). To read about environmental efforts within our operations, refer to the Eco-Efficient Operations section.
Board Oversight and Governance
Our Board of Directors and its Risk Committee consider changing climate conditions as part of, and integral to, overseeing our business and operations. The Board of Directors plays an important role in overseeing our Enterprise Risk Management (ERM) practices and strategies, including our company’s evaluation of potential risks relating to changing climate conditions. The Risk Committee of the Board, composed of independent directors, is responsible for oversight of the strategies, processes and controls relating to risks in our business operations, including insurance underwriting and claims, reinsurance, catastrophe exposure and the impact of changing climate conditions on those operations. The Risk Committee assists the Board in overseeing the operational activities of our company and the identification and review of risks that could have a material impact on Travelers, including risks relating to changing climate conditions. The Risk Committee meets on a quarterly basis with the Chief Risk Officer, Chief Underwriting Officer, members of the Enterprise Risk Committee and, as appropriate, other members of senior management to discuss risks that could have a material impact on Travelers, including risks relating to changing climate conditions. These discussions include, for example, information regarding historical loss experience, loss trend projections, lessons learned from recent catastrophe events, underwriting practices and market share analyses. These discussions inform, among other things, the company’s financial plan, risk appetite and underwriting approach. The Risk Committee, in turn, reports to the full Board with regard to its discussions.
In addition to the Risk Committee, our management-level enterprise risk and underwriting risk committees are key elements of our ERM structure and help establish and reinforce our strong culture of risk management, including with respect to changing climate conditions. A senior executive team, which includes the Chief Risk Officer and the Chief Underwriting Officer, oversees the ERM process. We also have other business-level risk committees that meet multiple times a year with senior management to discuss potential risks to Travelers related to the environment and changing climate conditions. These committees include the Enterprise Risk Committee, the Enterprise Catastrophe Committee, the Emerging Issues Committee and the Climate, Energy and the Environment Committee (CEEC).
The CEEC coordinates and supports climate-related initiatives and strategies across Travelers and is a venue to share information and leverage expertise. The CEEC has four subgroups, each led by senior staff and aligned with a key area of focus:
- Risk Identification and Management. Supports business activities to identify, monitor and assess climate-related risks. Participants include representatives from our Enterprise Risk Management function (which includes the ERM group, Catastrophe Risk Management, and Enterprise Underwriting). Representatives from Investments, Government Relations, Legal, Risk Control, Claim, the Global Renewable Energy Practice and business underwriting groups across the company also participate in this subgroup.
- Products, Market Development and Customer Services. Supports activities to identify and develop product opportunities, explore potential new markets and expand services to help customers prepare for and respond to potential risks related to changing climate and “green” trends. Participants include Business Insurance Underwriting and Product, Enterprise Underwriting, Risk Control, Claim, the Global Renewable Energy Practice and employees from across our business units.
- External Relations, Communications and Industry Leadership. Supports Travelers external-facing corporate groups on matters pertaining to climate, energy and the environment. Participants include the Travelers Institute, Government Relations, Corporate Communications, Catastrophe Risk Management, Enterprise Underwriting, Risk Control, Community Relations and Investor Relations.
- Facilities and Operations Management. Coordinates Travelers initiatives and activities to develop and implement environmentally responsible corporate practices, including establishing emission reduction goals and monitoring progress in achieving those goals. Participants include members of the Travelers Corporate Real Estate team, along with key members of the facility management teams of our outsourced service provider.
Travelers provides detailed climate-related disclosures through voluntary reporting, such as our TCFD Report, as well as mandatory submissions, such as those required by the National Association of Insurance Commissioners (NAIC). In 2021, the NAIC again allowed insurers, including Travelers, to submit a TCFD Report in lieu of completing the NAIC Insurer Climate Risk Disclosure Survey. The NAIC began accepting a TCFD Report in lieu of a completed NAIC survey in 2020. Readers are encouraged to review our TCFD Report to gain a more complete understanding of our approach to addressing the risks and opportunities related to changing climate conditions.
Risk Identification & Management
The Risk Identification and Management Subcommittee of our Climate, Energy and the Environment Committee (CEEC) meets regularly to discuss and assess climate-related issues, risks and trends. The subcommittee stays current on climate-related and environmental risks, including through industry publications and external conferences, and actively monitors various relevant factors, such as:
- Climate-related litigation and novel theories of liability.
- Legal and regulatory requirements impacting climate, energy and the environment.
- Market-based policies that put a price on greenhouse gases, such as carbon pricing or cap-and-trade programs.
- Efforts by states, nations and nongovernmental organizations to adopt policies or implement programs designed to reduce emissions impacting global temperatures.
- Emerging regulatory requirements and “best practice guides” for international businesses with respect to risk management, disclosure and scenario analysis practices relating to changing climate conditions.
- Impacts related to emerging “clean” or “green” energy and technology trends and products.
The subcommittee also receives regular updates from internal subject matter experts regarding emerging scientific analyses and published reports relating to weather trends and the effects of changing climate conditions. The majority of these publications focus on forward-looking impacts of changing climate conditions. These publications include:
- Materials issued by the U.N. Intergovernmental Panel on Climate Change.
- National Climate Assessment Reports issued in the United States by the National Oceanic and Atmospheric Administration as part of the U.S. Global Change Research Program.
- Articles published in scientific journals.
When a potential risk is identified, the subcommittee engages in a comprehensive review to evaluate the risk. This process involves the relevant internal stakeholder groups and, as appropriate, may be elevated under our Enterprise Risk Management (ERM) framework for discussion with senior management and the Board of Directors. To read more about our ERM activities, refer to the Capital & Risk Management section.
Risk Control & Mitigation
Climate trends, which manifest themselves over long periods of time, provide a long-term opportunity for our Risk Control department to offer and develop services to help current and potential customers mitigate the risks associated with changing climate conditions. For example, to help mitigate and minimize property losses caused by weather-related events, Travelers Risk Control has developed a comprehensive framework of technical planning resources to assist customers with conducting business impact analyses to prioritize and implement risk management action plans and physical improvements. Risk Control monitors events and claim trends and partners with associations such as the Insurance Institute for Business & Home Safety (IBHS) to assess innovative building products and new technologies to minimize wind, hail, flood and wildfire exposures. This deep domain expertise allows us to help customers improve their resiliency over time.
In addition, our Risk Control professionals provide guidance to our customers who have incorporated “green” products or systems to reduce carbon emissions and/or increase environmental sustainability. These products and systems include, for example, solar panels on residential and commercial rooftops, lithium-ion batteries used to store solar energy and vegetative roofs on commercial buildings.
Travelers Risk Control maintains technical committee memberships on the National Fire Protection Association, the Underwriters Laboratories Standards Technical Panels, the Fire Protection Research Foundation’s Property Insurance Research Group, the Organization of Scientific Area Committees for Forensic Science Standards and other associations to help us research and evaluate the reliability and fire safety of “green” products and systems to determine how these products and systems impact fire, structural and safety exposures. This knowledge is used to continually update our views and empowers our Risk Control professionals to help our customers mitigate the risks associated with changing climate conditions and “green” trends, with a goal of improving outcomes while strengthening customer relationships. To learn more about some of our other climate-related products and services, refer to the Products & Services portion of this section.
At Travelers, we strive to lead by example and incorporate climate-related risk control measures into our own operations. To read about environmental and climate-related risk control efforts within our operations, refer to the Eco-Efficient Operations section.
For both property and casualty lines of business, we consider environmental factors, including weather trends and patterns, alongside other relevant risk variables in our underwriting evaluation process and in our underwriting strategies. In addition to catastrophe modeling, discussed in further detail under Catastrophe & Weather Models, we evaluate the findings contained in governmental reports and other external scientific studies related to climate to assess potential impacts on our underwriting and pricing decisions. For example, we have evaluated the extent to which phases of the Atlantic Multidecadal Oscillation, the El Niño – Southern Oscillation, the North Atlantic Oscillation and Saharan dust conditions may influence changes in basin frequency, severity or U.S. landfall risk of hurricanes. Our catastrophe underwriting also incorporates lessons learned from recent events, including the 2017 Tubbs Fire (California), the 2018 Camp Fire (California) and the 2019 Kincade Fire (California), as well as past events, such as Hurricanes Harvey and Katrina and Superstorm Sandy. In addition, we are studying the impacts of several more recent wildfire events in California and Oregon throughout 2020 and 2021, as well as the late-season 2021 Marshall Fire (Colorado). These lessons learned are reflected in our:
- Disciplined approach to terms and conditions that are designed to make outcomes more predictable.
- Risk Control initiatives, which help us with risk mitigation, selection and pricing.
- Proprietary flood underwriting, which factors in building footprints compared with segmented flood zones.
- Proprietary wildfire underwriting, which factors in terrain slope, vegetation density and propensity to burn, and road access (including proximity to fire stations), as well as historical footprints.
We are able to respond quickly to changing conditions since most of our policies renew annually. This gives us the flexibility to adjust our pricing, underwriting strategy and related policy terms and conditions, as appropriate. In addition to making short-term tactical adjustments to our underwriting strategy and product pricing based on the climate-related risks we identify, we monitor climate-related risks on a medium- and long-term horizon to arrive at a holistic view of climate-related impacts on our business, further allowing us to adjust and refine our strategy, products and pricing.
Our broad product diversity also mitigates our exposure to climate-related risks. We engage broadly across nine major lines of insurance through our three business segments – Business Insurance, Bond & Specialty Insurance and Personal Insurance. Our portfolio is balanced across these lines of business and further diversified by geography and customer type and size. Travelers is a leading U.S. commercial writer with a top-five position in five major product lines, including a number one position in workers compensation and commercial multi-peril.1 See our Business Strategy & Competitive Advantages section to learn more about our product breadth and specialization.
Finally, informed by our risk selection, claim experience and risk appetite, we reinsure a portion of the risks we underwrite to further manage our exposure to losses and to protect our capital. We cede to reinsurers a portion of these risks and pay premiums based upon the risk and exposure of the policies subject to such reinsurance. For further discussion of our reinsurance program, see our Annual Report on Form 10-K.
Our robust risk management practices and disciplined approach to underwriting and pricing help Travelers identify and manage both the transition and physical risks related to changing climate conditions and respond to climate-related opportunities now and as these opportunities evolve over time.
12021 U.S. Statutory DWP. Five major product lines: Commercial Multi-Peril (Commercial Multiple Peril (Liability), Commercial Multiple Peril (Non-Liability), Farmowners Multiple Peril); Commercial Auto (Commercial Auto No-Fault (Personal Injury Protection), Commercial Auto Physical Damage, Other Commercial Auto Liability); General Liability (Other Liability Occurrence, Product Liability); Workers Compensation; and Surety. Copyright © 2022, S&P Global Market Intelligence. Used with permission.
Catastrophe & Weather Models
Travelers uses various analyses and methods, including proprietary and third-party modeling processes, to make underwriting and reinsurance decisions designed to manage the company’s exposure to catastrophic (CAT) events. The Catastrophe Risk Management group assesses CAT risk and manages the development of our strategic CAT efforts, including the use of proprietary and third-party models and geospatial analysis to analyze CAT events and related risks.
This group actively monitors and evaluates changes in third-party models and, when necessary, calibrates the CAT risk model estimates delivered via our proprietary modeling processes. We consider historical loss experience, recent events, underwriting practices, market share analyses, external scientific analysis and various other factors, including nonmodeled losses, to refine our proprietary view of catastrophe risk. Our proprietary models, which are an integral part of our Enterprise Risk Management process and support our long-term financial strategies and objectives, are updated on a regular basis as new information and techniques emerge.
Analytical techniques like these are an integral component of our Capital & Risk Management processes and further support our long-term financial strategies and objectives.
Products & Services
Travelers is positioned to benefit from the increased economic activity in the renewable energy and clean technology industries by insuring more renewable energy projects globally. Our dedicated Global Renewable Energy Practice provides solutions for the life span of a renewable energy business, from research and development and manufacturing to permanent operations, as well as onshore and offshore wind, solar and biopower operations. This practice is designed to facilitate innovation and the growth of renewable energy businesses and support the transition over time to a lower-carbon economy. Our Global Renewable Energy Practice also helps Travelers capture a greater share of the expanding renewable energy industry domestically and internationally, as trends toward renewable and clean energy sources continue to accelerate. For example, our WindPak® and SolarPak® products respond to unique coverage issues for the wind and solar industries based in the United States. We have also expanded our international footprint for onshore and offshore wind and solar operations throughout Asia, Europe, the United Kingdom, Mexico and Canada with our unique coverages written through Travelers Lloyd’s Syndicate 5000.
We continue to aggressively pursue the renewable energy sector, such as by providing coverages globally for commercial and residential solar installations and onshore and offshore wind farms, including the first U.S. offshore wind farm project, Block Island Wind Farm. Over the past three years, our Global Renewable Energy Practice grew at a compound annual growth rate of 30%, with revenue up over 120% since 2018. We also offer specialized coverage, as well as discounts where permissible, to incentivize environmentally responsible behavior – specifically, to encourage adoption of FORTIFIED Home™ construction, green buildings and hybrid/electric vehicles. Examples of our current product offerings include the following:
- Green Building Coverages. A suite of green building coverages that respond to the unique coverage issues of “green” buildings and provide for the additional costs to help policyholders repair, replace or rebuild with “green” materials after a loss.
- Green Home Discount. A discount of up to 5% for homes that are LEED (Leadership in Energy and Environmental Design) certified.
- Wind Mitigation Discount. In many states, our newest homeowners program offers a discount of up to 18% on hurricane premium for homes built to the Insurance Institute for Business & Home Safety (IBHS) FORTIFIED Gold™ standard. In Alabama, depending on the location, the discount can be up to 55% on hurricane premium for this designation. Additional discounts for wind mitigation may be available by state.
- Hybrid/Electric Vehicle Discount. A discount for hybrid or electric vehicles.
- Hybrid Boat Discount. A discount of up to 10% for hull and liability coverages on hybrid boats and yachts – available in certain states and subject to individual eligibility.
- Electric Boat Discount. A discount of up to 10% for electric boats run by motors instead of engines – available in certain states and subject to individual eligibility.
In addition, through our Prepare & Prevent website, we provide customers, agents and brokers and the general public with extensive educational resources to help them plan for, stay safe during and recover from natural disasters of all types. This site and our secure Risk Control website on MyTravelers® for Business provide customers, agents and brokers with access to over 1,250 resources to help them better understand risk, mitigate exposures and prevent losses.
Finally, when possible, we take steps to notify customers and agents of certain approaching natural disasters and inform them of steps they can take to help prevent damage. We send customized severe weather alerts – via text message, email or both – that let customers know of pending hazards in their area. We also provide links to actionable prevention content on our Prepare & Prevent website. After major natural disasters, we communicate with customers and agents to inform them of steps they can take to mitigate damage, file a claim and begin the recovery process.
As part of an ongoing effort to enhance public awareness about the need for effective adaptation strategies to reduce losses related to natural disasters, Travelers supports and participates in research, advocacy and education. Travelers sponsors the Insurance Institute for Business & Home Safety (IBHS), the BuildStrong Coalition, Habitat for Humanity®, SBP and the Wharton Risk Center to promote stronger building codes and more resilient communities and to influence industry standards and best practices. We participate on the board of IBHS, an independent, nonprofit scientific research organization supported by the insurance industry. IBHS translates top-tier research into action to strengthen homes and businesses, inform the insurance industry and increase community resiliency. Over the last decade, IBHS has identified gaps through full-scale laboratory testing at its state-of-the-art facility and has influenced changes to existing building code standards and best practices to mitigate potential losses. Through our research partnership with IBHS, we have gained a better understanding of severe wind, hail and fire impacts on building engineering standards. Travelers has incorporated these insights into our approaches for rating and underwriting.
We also participate on the board of the BuildStrong Coalition, a group composed of national business and consumer organizations, companies and emergency management officials. BuildStrong is dedicated to advocating for federal government legislation and incentivizing state adoption and enforcement of building codes to protect property, save lives and reduce loss costs.
Following enactment of the Disaster Recovery Reform Act in 2018, the Federal Emergency Management Agency (FEMA) developed a new pre-disaster mitigation program called Building Resilient Infrastructure and Communities or BRIC. Through this program, FEMA provides federal funds to states, local communities, tribes and territories for mitigation activities. For Fiscal Year 2021, FEMA was authorized to distribute up to $1 billion in BRIC funding. Long a priority for Travelers and the BuildStrong Coalition, FEMA now can provide states and localities with dedicated pre- and post-disaster funding opportunities that will save lives and help communities reduce the future costs of natural disasters by helping homeowners fortify their homes using IBHS-proven technologies. State and federal funding for resiliency efforts is essential. According to a National Institute of Building Sciences study, for every $1 spent on hazard mitigation, the United States can save $6 in future disaster costs. In these ways, we are advocating for our communities, which we believe is good for our customers, for the communities in which we live and work and for creating shareholder value over time.