Analysts at Gallagher Re have argued that the insurance and reinsurance industry is well-placed to act as “the driving force behind societal resilience in the face of growing climate risks.”
Writing in a blog for the reinsurance broking firm, Divisional Director for Climate & ESG Marie Ekström and Climate Risk Analyst Connor Gray contend that re/insurers as capital owners and evaluators of risk have “a major role to play in driving climate adaptation.”
Their comments focused on the work the Intergovernmental Panel on Climate Change (IPCC) has done to consolidate the scientific consensus on climate change impacts, as well as role of the re/insurance industry in addressing climate risk and the challenges ahead.
Having published accredited climate change assessments since the late 1980s, the IPCC released its latest report in its sixth assessment report (AR6) in February 2022.
Ekström and Gray assert that the “unequivocal” conclusions of AR6 have “thrown the gauntlet to the re/insurance industry” to now apply the IPCC’s dedicated work and underlying research to drive proactive risk management of climate risk.
“The role of the (re)insurance industry in both mitigation and adaptation is now very apparent – with many major insurers and reinsurers having already committed to the decarbonization of their portfolios and growing collaborative efforts on adaptation mechanisms such as public-private parametric schemes,” the Gallagher Re analysts wrote.
Among the other takeaways from the IPCC’s latest report is how a lack of financial investment is limiting climate adaptation, and how climate change is set to exacerbate many instances of cascading physical risks, which are triggered by a previous risk event with which the risk interacts.
This poses a greater challenge to the insurance catastrophe analytics community in quantifying the change in physical risks to a portfolio under a future climate, Ekström and Gray say.
“If the 2020s so far have reminded us of anything, it is how interconnected the world has become. As highlighted by the IPCC’s work, our vulnerability to climate-related risks has intensified and will continue to do so, challenging the stability of regional and international food, water, and energy supplies amongst other risks,” they conclude.
“For the industry to remain relevant in a changing climate, (re)insurers must tackle the challenges posed by climate change mitigation and adaptation head on. To achieve this, the industry must fully embrace its raison d’être of protecting society, by fast-tracking climate risk into its collective business model.”
