Climate mitigation and adaptation is essential to continue reducing emissions to counter hazard intensification, and public-private partnerships play a key role in funding and enabling this, according to Ivo Menzinger, Head EMEA, Public Sector Solutions at Swiss Re.
A recent report by the Swiss Re Institute revealed that global insured losses from natural catastrophes exceeded $100 billion for the fourth consecutive year in 2023, driven by earthquakes in Turkey and Syria, severe convective storms (SCS) and large-scale urban floods.
The year was also marked by a high frequency of events, as 142 insured natural catastrophes set a new record.
Analysts highlighted that, with climate change-induced hazard intensification likely increasing losses in the future, adaptation measures are essential to reduce emissions to counter this and reduce loss potential.
According to Menzinger, public-private partnerships and a comprehensive risk management approach are crucial to cope with the current and future risk landscape and maintain insurability.
“It’s essential that we continue to reduce emissions to counter hazard intensification, that is what we mean with climate mitigation. At the same time, we also need to invest in climate adaptation to cope with this changing environment,” the executive stated.
He continued: “There is bad news in the sense that climate change is already locked in, so we will have to expect higher losses. But there is also an element of good news. There have been previous studies by Swiss Re that suggest in various jurisdictions and locations, that up to 65% of these future losses can actually be averted cost effectively, which means that the benefit of the avoided damage in the future outweighs the investment that is required today.
“Essentially, everyone, all stakeholders, need to contribute their part to fund climate adaptation to maintain insurability. From the government, to the insurance industry, to the insured.”
Menzinger also highlighted that mandating insurance companies to assume risk and take it on their balance sheet at non-risk adequate prices is not a solution. Instead, it is key to maintain an open market with the ability to price according to each risk, he noted.
The Swiss Re executive has also observed that recent events, particularly in Europe, have led to a resurgence of these efforts in countries like Germany, Italy, Portugal and Greece.
“These conversations about introducing new insurance schemes are not being held in isolation from a conversation about how do we reduce risk, how do we prevent, and how do we mitigate the impact of things that we cannot avoid,” Menzinger stated.
He added: “My main focus is not to tell governments what they should do or should not. What I really want to talk about is the contribution the insurance and reinsurance industry can bring to the table.
“The reinsurance industry really is a gearbox and has a gearbox function in all of this. If you look at infrastructure investment, our industry plays a key role in enabling investments in protective infrastructure through taking out some of the risks. If you talk about preparedness and responsiveness, there is a role for the industry to incentivise risk reduction through adequate pricing; and there is a big role for us to advise governments and individual policyholders about the risks that they face.”
Finally, developing standards for good climate adaptation is another key role for the industry to play, and help society increase resilience, according to Menzinger.
Menzinger explained: “This industry is rooted in helping society manage risk. 150 years ago urban fires were widespread, they burned entire cities down. I would argue that urban fires are potentially what climate change is the challenge of our generation. The very establishment of Swiss Re goes back to a fire in Switzerland that burned down an entire city.
“It took a while, but ultimately the economic costs of the way that buildings were built became so high that the insurance industry and governments teamed up to develop universal underwriting codes for fire and zoning laws. They agreed and worked together to establish fire departments every three miles etc.
“I would argue that, in the context of climate change, there may be another need to come together and work jointly on doing what the industry has done before to help increase resilience.”
