Climate change is already impacting re/insurance on multiple fronts. On the underwriting side, the industry is vulnerable but also able to help the world better understand and mitigate these risks. On the asset side, the industry is under pressure to invest in a way that helps alleviate climate change.
While the re/insurance industry is compelled to adapt rapidly to the impact of climate change and closely examine its products and services, there is also the need to create awareness for more sustainability and resilience.
This was one of the main talking points from a panel discussion titled “What climate change means for re/insurers”. The discussion took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.
The event featured Laurent Montador, deputy chief executive officer at CCR Re; Raphael Papin, loss prevention engineer specialising in climate change at HDI Global France; Patricia Kwan, director, Financial Services Ratings, North America Insurance at S&P; and David McNeil, associate director, Sustainable Finance at Fitch Ratings.
The panel agreed that the re/insurance landscape is shifting rapidly as an increasing number of risks are coming to the forefront in all regions, with several new event losses and a need for catastrophe risk models where sectors are underinsured. Industry regulators are also sharpening their focus as developed and emerging economies are devastated by event-driven losses.
“Aside from the losses experienced, climate change has a direct impact on other essential features such as food supply and health.”
Patricia Kwan, S&P
Kwan said that climate change is a complex topic which has a massive impact on the re/insurance industry. “Aside from the losses experienced, climate change has a direct impact on other essential features such as food supply and health. It touches on everything.”
Papin added that the impact of climate change is far greater than was generally considered at first, and that the secondary effects can have far-reaching consequences.
“In addition to food and health, aspects such as business interruption and transport are impacted,” he said.
Montador observed that climate change has created new challenges that the industry has never before had to deal with.
“Business interruption is having a major impact on economies, but we are also seeing different patterns arising in new zones where there is population movement.”
McNeil pointed out the significant impact of real estate losses driven by floods and fires in emerging markets. “In addition, this leads to a significant increase in premiums for clients. One example is power utilities, which are at great risk during wildfires. Ultimately the industry is evolving rapidly to try and meet changing market needs.”
“There is an abundance of new products and services that may support and benefit not just the industry but also vulnerable regions.”
Laurent Montador, CCR Re
Many industry experts believe, however, that while the industry and the entire planet are at a point of no return when it comes to addressing climate change and its often devastating impacts, there may also be an opportunity to adapt, educate and devise a more workable solution.
The underwriting industry has an exceptional ability to create awareness that will help mitigate future risk and possibly even result in a more sustainable solution for regions that are vulnerable to the impact of climate change.
“In addition to using information that can create awareness and insight, the industry can engage with regulators and underwriters to adapt and create far more sustainable solutions,” Kwan explained.
This will require a change in the way the industry operates and how clients are approached and managed going forward.
“There is an abundance of new products and services that may support and benefit not just the industry but also vulnerable regions,” said Montador.
“However, this will require a great deal of education. Clients are often completely unaware of the climate change risks that they face and how fast the impact of climate change is impacting regions in both developed and emerging markets.
“They simply do not understand the full scope of the risks that they face, and the underwriting industry needs to take responsibility for education and awareness.”
However, he cautioned, some risks may be uninsurable. “While the industry is changing to enhance crisis management and prevention measures, it also needs to look towards governments and financial institutions to create a more sustainable risk-transfer scenario.”
McNeil added that many markets may not have considered other options which are readily available.
“There is an opportunity for the revision of risk models and the pooling of risks, as well as creating new solutions-driven prospects and services for clients—such as incentives to better mitigate their risk before climate change-driven events take place,” he concluded.
To view the full Re/insurance Lounge session click here
Image courtesy of Shutterstock / Ondrej Prosicky