Climate change is ranked as the second most urgent threat to business by reinsurers, and as the third most urgent by property and casualty (P&C) insurers, according to a new report from the Centre for the Study of Financial Innovation (CSFI) and PwC.
The Insurance Banana Skins 2019 report surveyed re/insurers on the risks facing the industry this year, and identified which appear to rank as the most urgent concerns.
Climate change was seen as a much more pressing threat this year compared to previous surveys, and would have been placed even higher were it not for the perception that it has little impact on the life side of the industry, which ranked it in 19th place.
A common theme was the growing economic destructiveness of extreme weather events and their impact on re/insurers, including hurricanes and typhoons, floods, droughts, and wildfire.
“The frequency and severity of events has more than doubled in the past 10 years and is expected to continue to increase as global temperatures continue to rise,” said the President of a P&C insurer in Canada. “New flood products have not been fully tested for price adequacy and wildfire risk is growing as well without models to assist in measuring exposure.”
Christoffel van Riet, Board member and Chief Operating Officer at Klaverblad Verzekeringen in The Netherlands, also commented: “It is not just about an unexpected hail storm. It is about a possible substantial change of the fabric of our societies as a result of potential massive migration driven by climate change invoked food shortages.”
Many respondents to the CSFI and PwC survey also noted that some risks may become increasingly difficult or even impossible to insure as a consequence of climate change.
“The escalation in trends and volatility will challenge the sustainability of traditional insurance products unless we start putting more focus on prevention as opposed to indemnification,” remarked Lisa Guglietti, Chief Operating Officer P&C Manufacturing at The Co-operators in Canada.
“Many clients are unable to afford the risks that they are exposed to, and more alarmingly many of these same clients are unaware that they have this exposure.”
The Chief Actuary at a P&C insurer in New Zealand added: “In the short term this looks like greater use of risk-based pricing; however, as the response evolves there will be more restrictions and potential withdrawal of cover.”
Additionally, a respondent in India said: “If Global Warming increases the number of disasters, reinsurance pricing could produce shocks for the insurance industry,” while a regional chief executive of a Chinese reinsurer noted: “Many P&C insurers are not taking out adequate reinsurance protection as they want to reduce the cost of protection. This may result in sizeable financial impact to their capital.”
CSFI and PwC observed that the perceived threat from climate change was in many cases informed by how much time companies felt they had to prepare for its effects.
For example, a respondent in the UK said: “In the next few years, it will continue to worsen extreme weather events, but to a manageable extent.”
On the other hand, many companies were already seeing material impact on their business, with a respondent from the Philippines stating: “Change in weather has greatly affected the way we underwrite risks. We have seen a shift in the direction of typhoons lately. We have had to change some our business modelling because of this.”
