Lloyd’s Chief Executive Officer Inga Beale has added her voice to industry experts who warn of climate change having altered the risk landscape after Lloyd’s paid out £4.5 billion last year for large claims net of reinsurance.
Beale said the re/insurance industry is seeing the impact of climate change, and speaking of Lloyd’s 2017 losses she told Bloomberg; “that’s a significant number, that’s more than double in 2016, we’re seeing the impact of climate change to a certain extent, particularly on these weather losses, with the rising sea level that impacts and increases the amount of loss.
She explained that the rising sea temperature increases the “frequency and likelihood of some of these hurricanes hitting land and that is absolutely driving an increase in frequency and cost of natural catastrophes like that.”
In a similar vein, Swiss Re Chief Financial Officer, David Cole told CNBC in November last year everyone needs “to realize climate change is a fact and we need to prepare for that.
“I think society really needs to wake up and realize that things are changing and if you continue to build in areas that are subject to flood, you need to be prepared to actually deal with the aftermath of flood.
“Our role is to make people aware, to help people understand the risk they face and also to put a price on that risk. If these prices are unsustainable we need to signal that to the market.”
Swiss Re had reported its nine-month property and casualty combined ratio had risen to 114.1% after being hit with heavy claims losses following 2017 catastrophe events.
Climate experts at the 23rd Conference of the Parties (COP23) to the United Nations Framework Convention on Climate Change (UNFCCC) warned that on a global level insurance is failing to cover 70% of climate change damage, and this percentage rises to 98% for developing nations.
However, Moody’s noted that climate related challenges for reinsurers, particularly the P&C segment, will increase over time due to the “combination of increasing insured property values along coastlines with increased frequency of weather-related catastrophic events.
“The effects of climate change on the frequency and severity of catastrophic events are difficult to predict, and the correlation of climate-exposed risks that span P&C re/insurers’ balance sheets increases the magnitude of potential losses arising from the physical and transition risks associated with climate change,” said James Eck, a Moody’s Vice President.
The number of severe weather events has grown from around 60 events annually in the 1970s to an average of 310 events annually during the past 10 years, according to Moody’s.
To keep up with the changing risk landscape, firms are tasked with the need to continuously assess, measure, and mitigate catastrophic risks.
Beale told Bloomberg that while Lloyd’s must not shy away from the fact that some of the underlying portfolios aren’t all making good underwriting profits for insurers because of the pricing pressure from capital flooding the market, geopolitical and technological pressures have created new opportunities for re/insurers.
“We’ve also got other catastrophes that are happening around the world, we’ve got earthquakes and they’re again very unpredictable so it’s always very difficult to look at that sort of volatile side of insurance but we’ve also got many other lines of business and products out there that are not related necessarily to climate change.
“Now one of the biggest increasing risks for all businesses is technology and the risk of being attacked or perhaps losing data affecting customers.
“We’re seeing some growth in new areas, one is demand for cyber insurance, we’re also seeing the sharing economy really taking off in various markets in the world and we’re offering products in the sharing economy.
“We’re seeing political uncertainty all over the world and we’re seeing greater demand for political risk insurance, so there’s lots going on out there and lots of new things that Lloyd’s can look at.”
