There isn’t a single industry around the world that isn’t, or isn’t going to be, affected by climate change. From droughts to wildfires to flooding to increasingly severe storms, climate change is happening everywhere around the world. As this piece is being written, Australia is experiencing one of, if not the, most significant bushfires it has ever seen, following one of the worst droughts in its history. Last year, in the US, the state of California experienced its own version of this catastrophe.
It’s an issue that has, finally, caught the attention of the world and many of its leaders, both in government and in business. High-risk areas that already have climate disaster plans in place will brace for increasingly difficult conditions and historically low-risk areas will begin experiencing these climate changes for the first time.
Large and small businesses as well as individuals can expect their daily, monthly, and yearly activities and financials to be impacted to some degree by our changing climate. When this happens, they will turn towards the insurance and reinsurance industries to help support them in efforts to rebuild and adjust to new conditions. For this reason, few industries are better positioned to spearhead the conversation on climate change preparedness than the insurance industry.
Few industries will be as heavily impacted as the insurance/reinsurance industry
There are a number of ways insurers can expect to be impacted by an increasingly volatile climate and natural disasters:
- Increasing number of environmental insurance policies bought and claimed (in short, these help businesses cover losses incurred as a result of third party and regulatory action arising from pollution or contamination)
- Increased difficulty in supporting large, multinational companies with global property insurance policies in remote and high-risk countries
- Increasing number and severity of claims each time there’s a widespread natural disaster, impacting travel, home, business, property, fire, health, flood, and life insurance (in extreme cases, this can wipe out entire insurance companies)
- Being forced to reconstruct, reprice, and recalibrate insurance offerings to adjust to changing conditions, particularly in once low-risk locations
- Business setbacks when company partners, employees, and customers in high-risk areas suffer personal and financial losses
Aside from the financial setbacks and losses insurers can expect to face themselves, they must also be prepared to help their customers weather these damages. In many markets, insurers play the role of financial emergency response for the individuals and companies relying on their policies to protect them in the event of a natural disaster. For this reason, it’s not only for their own purposes that insurers should be particularly invested in supporting legislation, measures, and actions to combat climate change, but for the sake of their customers as well.
Some insurers are already preparing for the challenges associated with climate change
The good news is that many large global insurers and innovative insurtechs alike have already joined this fight in one way or another. In states like California and countries like Australia, which are particularly vulnerable to natural disasters, insurers and insurtechs play an important role in aiding the community in a catastrophe.
In Australia today, bushfires have devastated the country’s landscape, wildlife population, communities, and economy. Insurers like Zurich are joining the relief effort by providing financial relief, mental health programs for employees and customers affected by the blaze, and supporting the efforts of first responders. Meanwhile, the Australian insurance industry is campaigning the government to increase its investment in permanent measures to combat climate change, like better bushfire research, flood prevention, and cyclone resilience.
Campbell Fuller, of the Insurance Council of Australia, told Bloomberg TV that, “No property should be uninsurable, but that requires governments to act now to help reduce the risks to properties for what is already here, let alone what is coming with climate change.”
In Japan, which is subject to typhoons (tropical cyclones), insurers are working to adjust their preventative measures and preparedness for regular seasonal shifts as well as climate change. This same adjustment is required in the US, which experiences a regular but increasingly volatile hurricane and tornado season each year.
Ernst Rauch, Chief Climate and Geoscientist at Munich Re, said, “The typhoon season shows that we must consider short-term natural climate variations as well as long-term trends due to climate change. In particular, cyclones are becoming more frequently associated with extreme precipitation, as with Hagibis in Japan in 2019 and Hurricane Harvey in 2017 in the US. Recognizing these changes can form the basis for further preventive measures to reduce losses.”
Insurers aren’t the only ones in the industry adjusting and developing with climate change in mind. A large number of insurtechs are joining the fight, developing policies for individual customers that fall between the gaps in the market or solutions for insurers that help them price, prepare, and respond to an increasingly level of risk.
Insurers can spearhead the conversation around climate change preparedness and action
In today’s world, insurers have a massive opportunity, and more than one pressing reason, to lead the conversation and stress the urgency about climate change. When individuals, companies, governments, and corporations are relying on the industry to help them in a time of desperate need, insurers need to make sure they’re ready to respond. This means improving predictive and preventative measures, adjusting their products and pricing to reflect changing conditions, clarifying their offerings, and smoothing the claims process so customers can feel secure when disaster strikes.
It also means partnering and pushing forwards the innovations, measurements, and solutions that can help mitigate the crisis. In Australia, the industry is acting by increasing pressure on the government to step up its measures and investments to combat climate change. In response to increased wildfires in Colorado, Travelers hosted a wildfire preparedness event for the community. Swiss Re just recently announced an Agency Agreement with kWh Analytics to promote, accelerate, and increase the adoption of sustainable solar energy solutions. These are all ways for insurers to get involved in this fight.
Perhaps one of the most important ways insurers can help fight climate change is by saying no to risky policies. By refusing to insure high-risk corporate buildings, homes, and properties, insurers can force individuals, businesses, and entire communities to rethink the way they live in today’s world. Saying no to new construction in flood zones or new, unsustainably built buildings can bring about important change as people adapt to a new set of circumstances and a new environment.
No business sector has more at stake in the fight against climate change than the insurance industry, making insurers natural leaders, if they choose to be, in this conversation we all need to be having.
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