New research published from Capgemini and Efma’s recent World Property and Casualty Insurance Report reveals that climate change is hurting the insurance industry, and that insurers need to change their business models to achieve climate resiliency.
The inaugural report titled – “Walking the Talk: How insurers can lead climate change resiliency”, addresses the impacts on climate resiliency within the insurance industry.
The report highlighted how globally, economic losses driven by climate change have increased by 250% in the last three decades.
At the same time, 73% of policyholders rank climate change among their top concerns, while insurers mirror the concerns of their customers with about 40% ranking climate change as a top priority, with insurability and profitability as leading climate-related issues.
In addition, the report addresses how fundamental changes are required to create customer focused, resilient business models. The report shows that more than 80% of individual and small commercial clients within the insurance industry are keenly aware of climate influences and have taken at least one key sustainable action over the last 12 months.
However, the report highlights that more needs to be done to combat the detrimental effects of climate change as only 8% of insurers that were surveyed are insurance front runners or “resilience champions”- insurers that have strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.
Furthermore, the reports findings suggest that insurers need to rethink their current risk assessment models, deploy risk prevention at scale, and drive sustainable investment and underwriting strategies, moving beyond exclusions and divestments, to create a resilience ecosystem.
Among those deemed as “resilience champions”, 82% have a chief sustainability officer or equivalent, close to 77% have embedded climate-risk data in their products and services, nearly 60% are in advanced stages of deploying machine learning-based pricing models, and around 53% are accessing new data sources to provide accurate, granular and real-time risk information.
The report concluded with three key actions to help fuel insurers’ climate resiliency journeys while boosting their relevance and profitability. Firstly, it states that insurers must embed climate resiliency into their corporate sustainability strategy with clear actions assigned to c-suite executives to ensure ownership and accountability.
Secondly, insurers must rework their innovation approach to bridge the gap between long-term goals and short-term planning by embedding resilience across an insurance company’s entire value chain. Lastly, insurers must redesign their technology strategy with product innovation, customer experience and corporate citizenship at the heart of it, which can be achieved by integrating technologies such as IoT, cloud, AI, machine learning, and quantum computing.
Seth Rachlin, Global Insurance Industry Leader, Capgemini, commented: “The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks. Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”
John Berry, CEO of Efma, added: “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”