The impact of climate on insurers is undoubtedly high on their risk agenda. However, a recent move by the New Zealand government has bought the subject back into the headlines.
Global impact of climate on Insurers
There is now huge global interest focussed on climate change and the effects on the planet. It is a subject of great importance to the insurance market and is again under scrutiny. This time as New Zealand take regulatory action. Taking a global lead, New Zealand introduced a law that will require the country’s financial sector to report the impact of climate change on their business. Insurers will have to explain how they plan to manage climate related risks and opportunities.
Insurers have a close eye on this anyway. According to the 10th Allianz Risk Barometer, Climate Change is 9th on the list of global risk. An earlier report from the re/insurance broker Aon, Catastrophe Loss estimate for 2019, put inland flooding as the costliest individual peril. Steve Bowen, Director and Meteorologist at Aon’s Impact Forecasting team warned “Scientific research indicates that climate change will continue to affect all types of weather phenomena and subsequently impact increasingly urbanized area…”
UK impact of climate on Insurers
The impact nearer to home has been only too evident. Last year the UK suffered from havoc wreaked initially by Storm Ciara, followed closely by Storm Dennis. The effects are shown dramatically in pictures published by Farmers Weekly in their article, Storm Dennis deluge takes its toll on farmers. NFU Mutual are quoted “Just as with Storm Ciara, our regional claims teams, agency network and suppliers are prepared and ready, to ensure we’re able to meet the needs of our members should they be affected by Storm Dennis.” They will not be the only Insurers to be prepared. Indeed, experts at PwC predicted Storm Ciara expected to cost up to £200 million in insurance claims – and that was before the onslaught of Dennis. These two examples alone illustrate the impact of climate on insurers.
How to mitigate climate risk?
Firstly, this is not an insurer problem, it is a global issue. Konrad Schoeck, a flooding specialist from Swiss Re said “Flood risk management cannot be done by the insurance industry alone. It needs to be the insurance industry, the government and private homeowners.” This holds true of all climate risk, not just flood
Back in 2020 the Government announced an investment of £1.2 billion for the world’s most powerful weather and climate supercomputer. Forewarned is forearmed. However, this is only going to predict the symptoms of the risk. Far more difficult is the need to treat the causes. ‘Megafires’ hit hard in the Australian summer last year, prompting a climate emergency summit calling for urgent and dramatic climate action. There are no easy answers, but the summit highlighted these three big objectives:
- Commitment to reduce greenhouse gas emissions to zero
- Draw down carbon emissions already in the atmosphere
- Integrate adaption and resilience methods into national and global economies.
No one individual can make a significant impact to the risks from climate and severe weather. However, working together we can make a difference. Firstly, we can all take preventative action to try and ensure extreme conditions have as little impact as possible. In addition to prevention comes the harder challenge. That of helping towards the reduction of gas emissions. Often this includes difficult life choices such as:
- Travel less in general, avoid planes and use more efficient/electric cars
- Make your home as energy efficient as possible
- Waste less…and recycle waste effectively
As with individuals, Insurers can exert influence in two ways. Firstly, they can adopt a ‘prevention’ model designed to help their clients avoid major insurance risks. Insurers are introducing solutions to help clients avoid potential claims. Examples include Hiscox who offer Leakbot’s leak detection system for free and Nationwide in the US who have launched a smart home solution.
Insurers are also taking a much broader responsibility to alleviate the adverse effects of climate change. This is summed up by a quote from the Climate Change article on the ABI website:
“The biggest thing the industry can do is to use its sizeable investment portfolios to move funding away from things that are polluting the planet and into greener initiatives. Current structures and regulation make that harder to do than it should be – so let’s fix them.”
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