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Insurance and preparedness will protect communities against climate change: Allianz

13th February 2023 - Author: Kassandra Jimenez-Sanchez

Climate change is creating risk on an unprecedented scale, but insurers can play a role to significantly reduce the degree of their impact by helping to build resilience, according to an Allianz report.

floodAs extreme weather events cannot be prevented, using the example of flood events Allianz analysts have shared their answers on how to minimise the loss of life and property when flood events occur.

Floods can occur anywhere, especially those caused by heavy rainfall, and are one of the most common natural disasters on the planet. While flooding and other extreme weather events have always been part of life on Earth, they are becoming the norm due to climate change, experts explain.

If humanity continues warming our planet at the current rate, increasing rainfall, dryer summers and rising sea levels are likely to increase the risk of disastrous flooding in many areas.

As it is clear that there is a climate emergency, experts like Katherine Wenigmann, natural catastrophe risk expert at Allianz Reinsurance, believe that the situation will continue to worsen.

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Wenigmann highlighted that, events like the 2021 July floods – when extreme rains turned into catastrophic floods throughout Europe – will likely occur more frequently as a result of climate change.

Boris Gao, Senior Risk Consultant at Allianz Global Corporate & Speciality, added: “The flood risk landscape, previously well defined by historical and government flood maps and to some extent local knowledge, is being challenged with erratic and unprecedented weather patterns.

“What we accepted as ‘normal,’ is being challenged by new realities of climate change, rapid urbanisation and human development.”

With the scientific knowledge that has been gathered so far, as well as the capabilities of meteorological agencies, flooding events are able to be forecasted days ahead of the deluges.

But sometimes these catastrophic situations and losses cannot be avoided. One of the reasons involves communities and authorities misunderstanding or diminishing local risk. As a result, they are caught unprepared to respond appropriately to the impacts of flooding.

To make things worse, awareness in many communities remains low, analysts noted, with home and business owners failing to purchase adequate insurance. But even when there is awareness, sometimes they still remain reluctant to invest in coverage, most of the time due to the cost-of-living crisis, the report highlighted.

The situation is even worse in socially marginalised and vulnerable populations. “In such communities, recovery from floods is often prolonged and incomplete,” said Daniel Kahl, Ph.D. student at the University of California Flood Lab and finalist in the latest Allianz Climate Risk Research Award. “It is essential to identify such inequalities and develop new tools to address them.”

That all of this has an impact on how insurers do business is evident. “Climate change is changing the way we need to look at physical risk for our customers,” said Holger Tewes-Kampelmann, CEO of Allianz SE Reinsurance. “Our job in the insurance industry is to make sure that we have a thorough and diligent risk assessment in place that goes hand in hand with mitigation actions to keep our business model sustainable.”

While insurers must continue to promote and develop coverage options based on accurate risk assessments in and outside of flood zones, the role of insurance companies doesn’t end there, analysts stated.

Extreme weather events cannot be prevented, but the degree of their impact can be significantly reduced. Preparedness in order to minimise the loss of life and property is key, analysts added.

According to Prof. Dr. Michael Kunz, Spokesman for Disaster Management and Risk Reduction at the Karlsruhe Institute of Meteorology and Climate Research, it’s all about increasing resilience. “An essential component of resilience is the risk competency of each individual, which leads to rapid and appropriate actions of the population when a disaster occurs. Acquiring risk competency starts in school but should also be incorporated into the dialogue of different populations and stakeholders – and, of course, in the insurance sector,” says Kunz.

Allianz analysts have also shared some points that could help manage risk exposure and to build a resilient society are: to encourage preparedness via catastrophe warning systems and disaster response capabilities; increase risk awareness via public access to simple risk information, such as flood maps.

Other points include: invest in prevention via sustainable and long-term measures to help limit the impact of climate change; and to transfer remaining risks via the insurance value change.

Ultimately, it is a combination of insurance and preparedness that will protect communities in the long run, especially in the face of a long battle against climate change. For Klaus-Peter Roehler, member of the Allianz SE Board of Management, it’s clear that smart working together is essential. “A viable solution involves a holistic approach; collaboration across science, business and politics, but also right down to the individual level,” says Roehler.

“It has to include elements such as individual prevention, intensive flood protection, a rethinking of building and land use planning, warning and rescue systems, as well as insurance solutions for the broad population and their affordability. Political support is essential, especially when it comes to heavy rain and flood risks. Here, stringent restrictions on building in floodplains play a central role, as do flood protection and river basin management.”

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