As a core part of our business, we continually monitor, assess and respond to the risks and opportunities posed by changing climate conditions in order to provide products and services that both help our customers mitigate associated risks and are priced to meet our long-term financial objectives. This section introduces our approach to managing changing climate conditions, which we expand on in a more 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.
Our Board of Directors and 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) organization, including our company’s evaluation of potential risks relating to changing climate conditions. The Risk Committee of the Board, composed of six independent directors, assists the Board in overseeing the operational activities of our company and identifying and reviewing risks that could have a material impact on Travelers, including risks related to changing climate conditions.
Consistent with its Charter, the Risk Committee has oversight responsibility for climate-related strategies, processes and controls, including catastrophe risk management, reinsurance and product underwriting and pricing. In addition to the Board Risk Committee, various business-level risk committees meet multiple times a year with senior members of management to discuss potential risks to Travelers related to the environment and changing climate conditions. These business-level committees include the Enterprise Catastrophe Strategy and Analysis group, the Enterprise Risk 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.
Travelers provides climate-related disclosure through mandatory submissions, such as our latest NAIC Insurer Climate Risk Disclosure Survey submission, as well as voluntary disclosures, such as our first TCFD Report and our 2018 CDP Climate Change survey response. Travelers has long supported voluntary climate disclosures, first responding to CDP in 2003 — the first year CDP issued its carbon disclosure survey. Travelers has also been an invited respondent to the RobecoSAM Corporate Sustainability Assessment and has been included on the Dow Jones Sustainability Indices’ North America index for 12 consecutive years (2007–2018).
We incorporate weather and climate variability into our underwriting and pricing decisions. For example, we have evaluated the extent to which climate phases, such as the El Niño Southern Oscillation, may influence changes in the frequency and severity of U.S. landfall risk of hurricanes. Our catastrophe underwriting also incorporates lessons learned from recent events like the Tubbs Fire (California) in 2017 and the Camp Fire (California) in 2018 as well as from past events like Hurricane Katrina and Superstorm Sandy. Those lessons are reflected in our:
- disciplined approach to terms and conditions, which 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 to segmented flood zones; and
- proprietary wildfire underwriting, which factors in terrain slope, vegetation density and propensity to burn, road access including proximity to fire stations, as well as historical footprints.
In addition, we are able to respond quickly to changing conditions since most of our policies renew annually. Finally, our broad product diversity also mitigates our exposure to climate-related risks. See our Business Strategy & Competitive Advantages section to learn more about our product breadth and specialization.
Informed by our risk selection, claims 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.
Through our robust risk management practices and disciplined approach to underwriting and pricing, Travelers is positioned to identify and manage both the transition and physical risks related to changing climate conditions and to respond to appropriate climate-related opportunities now and as such opportunities evolve over time.
Travelers uses various analyses and methods, including proprietary and third-party computer modeling processes, to make underwriting and reinsurance decisions designed to manage the company’s exposure to catastrophic (CAT) events. Our Enterprise Catastrophe Strategy and Analysis group assesses CAT risk and manages the development of strategic CAT efforts, including the use of proprietary and third-party computer models and geospatial analysis to analyze CAT events and related risks.
We actively monitor and evaluate changes in third-party models and, as needed, calibrate the CAT risk model estimates delivered via our proprietary processes. We consider CAT model stochastic loss estimates, historical loss experience, loss trend projections, lessons learned from recent events, underwriting practices, market share analyses, external scientific analyses and other factors, including non-modeled losses, to refine our proprietary view of CAT risk. We continually update these models, which are an integral part of our ERM process and support our long-term financial strategies and objectives.
In addition to CAT modeling, our geospatial capabilities integrate weather event overlays on policy and claim locations that are further supplemented with aerial imagery to fully understand our loss activity compared to expectations. Analytical techniques like these are an integral component of our Capital & Risk Management processes and further support our long-term financial strategies and objectives.
Our dedicated Global Renewable Energy Practice provides insurance solutions for the life span of a renewable energy business, from research and development and manufacturing to permanent operations, as well as for on- and off-shore wind, solar and bio power operations. This practice is designed to help 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® insurance products respond to unique coverage issues for the wind and solar industries.
We also offer discounts or rebates where permissible 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” commercial buildings and provide for the additional costs to help policyholders repair, replace or rebuild with “green” materials after a loss.
- LEED Certification Discount: A discount of up to 5% for homes that are LEED (Leadership in Energy and Environmental Design) certified.
- FORTIFIED Discount: A discount of up to 25% on hurricane premium for homes built to the IBHS FORTIFIED Gold Standard.
- Alternative Fuel Vehicle Discount: A discount of up to 10% for hybrid, electric or flexible fuel 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.
Travelers sponsors the Insurance Institute for Business & Home Safety (IBHS), the BuildStrong Coalition, Habitat for Humanity® 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 tasked with understanding and quantifying the impact of building codes and standards on loss. Over the last decade, IBHS has identified gaps through full-scale laboratory testing at its state-of-the-art facility and influenced changes to existing building code standards and best practices to mitigate potential losses. 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 from the devastation of natural disasters and reduce loss costs.
In 2018, national mitigation and resiliency efforts benefited from the enactment of the Disaster Recovery Reform Act. Long a priority for Travelers and the BuildStrong Coalition, Congress has now provided states and localities with dedicated pre-disaster 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. As concluded by a National Institute of Building Sciences study released in 2018 that evaluated the results of 23 years of federal mitigation grants, federal funding can save the United States $6 in future disaster costs for every $1 spent on hazard mitigation.
We believe advocating for our communities is good for our customers, for the communities in which we live and work and for creating shareholder value over time.