Climate change has quickly climbed the ranks to join technology and cyber risk as one of the three most pressing concerns for the reinsurance industry in 2019, according to the new Banana Skins report by PwC.
Now ranked as the third-biggest concern to reinsurers, climate risk is a new entry to the top 20 and received its highest score ever in PwC’s 2019 report.
Respondents from 300 reinsurance companies expressed much anxiety about the costs of mounting claims from more frequent and severe natural disasters, as well as the prospect that some risks could become uninsurable.
“It’s absolutely the number one major risk,” said one actuary in the Netherlands. “The risk is of increasing natural disasters and crippling claims charges, but also the risk of failing to provide good solutions or coverage against these risks (massive reputational risk).”
Other respondents warned that “the frequency and severity of weather events will cause revaluation of accepted risks or specific exclusions,” and that “greater volatility will have to be paid for by customers.”
Speaking at a briefing in Monte Carlo at the 2019 Reinsurance Rendezvous event, Andy Moore, Global Insurance Risk & Regulatory Leader for PwC UK, commented on the findings of the report.
“It is undoubtedly the case that climate change has shifted and is shifting the way in which insurance is offered and the underlying risks to which insurers and cedants are exposed, and then the reinsurers,” Moore told attendees.
“It’s also the case that people are not always just worried that the risk will have an impact on price, but we have respondents saying at what point do these risks become uninsurable? At what point does temperature increase lead to a world in which certain locations are uninsurable?”
Notably, when comparing reinsurers’ top concerns to those of the wider insurance industry, most of the highest ranking concerns are ranked in similar positions. This is with the exception of climate change, which only comes in at number six.
“I think it just shows it’s very high on reinsurers’ agenda compared to the wider overall market,” Moore said, “particularly with life insurers seeing that as being a lesser risk than the non-life and reinsurance market.”
Moore also observed that overall 2019 was the riskiest year on record, according to PwC’s clients, with the top risk in this year’s report scoring higher than any risk has done before, and average people scoring risks higher than at any point previously.
However, analysts at PwC also felt that the industry seemed more confident in its ability to deal with these heightened risks than it had done in the past.
“The risks are high, but so is the confidence of this industry to deal with these risks,” said Stephen O’Hearn, Global Insurance Leader at PwC Germany.
“There really does seem to be an optimism, that while the environment is moving fast and it’s challenging and there’s threats all over the place that this is a more optimistic industry than it was a couple of years ago.”
O’Hearn attributed this optimism to the advantages offered by new technologies and their potential impact on the way reinsurers run their companies, assess risk, and communicate with customers, amongst other benefits.
Geographically, climate change was found to rank as a more pressing concern in regions more affected by natural catastrophes, such as North America and Caribbean, and Asia Pacific.