EDITOR’S LETTER

Never mind hardening rates, climate change is top of the agenda now

“Wildfires, hurricanes and floods—they are so visual, so impactful in an age of 24-hour news networks.”

At almost any other time in the history of the reinsurance industry, the main topic during this renewals season would have been rates: are they hardening, how much are they hardening, what will that mean for investors/capacity/ buyers/new capacity entering the market, and so on.

A hard market does not happen very often, but when it does, the industry likes to talk about it. After what seemed to some like an “eternal” soft market, that is probably fair enough.

The industry would have also been talking about COVID-19, of course. A once-in-a-generation pandemic leaves its mark on the industry.

However, it seems neither of those themes will dominate discussions this year.

Instead, climate change and the associated issue of environmental, social and corporate governance (ESG) factors have moved to the top of the agenda for companies—or certainly their most senior executives, perhaps one step removed from the nitty gritty of rate increases.

The topic has rapidly moved in the past couple of years from what seemed like a theoretical problem the industry would tackle at some point in the future to something very real, which it needs to take seriously now.

This shift has been propelled largely by tangible losses that increasingly seem to be driven by climate change. Wildfires, hurricanes and floods—they are so visual, so impactful in an age of 24-hour news networks. They are also causing real losses: the real reason for the hardening market we are seeing.

This issue of Monte Carlo Today is full of examples illustrating just how seriously the industry is taking the topic. In one of our keynote interviews, the buyer for Unipol Group describes how he is considering linking its reinsurance programme to a climate change index.

The threat to GDP

Swiss Re has highlighted the issue. It stated that climate change poses the biggest long-term threat to the global economy, which could lose up to 18 percent of gross domestic product from climate change by 2050 if no mitigating actions are taken.

It noted: “Especially the risks from secondary perils, such as floods or wildfires, are growing, also driven by urbanisation, exposing ever-larger communities and assets to extreme climate events. Increased digitisation and interconnectedness are adding to the current risk landscape, for example in the area of cyber protection.”

Rating agency Moody’s has also referenced climate change as a driver of losses but, like Swiss Re, noted that this could lead to more demand for reinsurance. It said that higher prices, a strong rebound in global economic activity and lower pandemic-related losses should outweigh the negative effects of declining investment returns, increasing natural catastrophe claims due to climate change, and a temporary pick-up in inflation.

We suspect this is just the start. Many of the companies that look to set an agenda around an event such as Monte Carlo have clearly put climate change at the centre of things. It will be interesting to see how the industry reacts, how the debate develops and whether any tangible action points emerge during the next four days of the industry’s most significant and influential conference.

Wyn Jenkins, managing editor, Intelligent Insurer

Image: shutterstock.com / Roschetzky Photography