Insurers and reinsurers should consider responding to climate change risks by rewarding corporate resilience efforts with premium discounts or access to additional capital, according to Aon.
The broker noted in its latest Weather, Climate & Catastrophe Insight report that recent trends in natural disaster activity are putting increasing pressure on re/insurers to look to the future and manage evolving climate risk.
It added that the industry now has an opportunity to encourage investors, lenders, insurers and policymakers to explore how they can best manage and respond to the increased physical risks of climate change using insurance products and knowledge.
“The role of insurance in helping finance and reward corporate resilience efforts needs much deeper investigation,” the report stated.
However, Aon claimed that there is currently a disconnect between the desire for companies to receive a financial reward in return for increased climate resiliency, versus what insurers are typically prepared to offer.
Additionally, corporates are usually reliant on other supply chain vehicles like suppliers and public assets, which are exposed to their own resilience challenges and are often substantially underinsured.
Aon endorsed stronger cooperation between policymakers, urban planners, risk managers, engineers, investors, and insurers in order to build economy-wide resilience and develop new approaches to risk management.
The climate resilience rewards approach advocated by Aon also aligns with the Financial Stabilities Board’s Task Force on Climate-related Financial Disclosures (TCFD), which recommends that physical risk is included on an organisation’s annual filings to build corporate resilience.
This aims to provide investors with more transparency to efficiently allocate capital and manage systemic financial risks, while at the same time as protecting individual assets for sustainable business continuity management and strengthened balance sheets.
Aon claimed that the TCFD has the potential to grow investor interest and lead to increased demand for catastrophe solutions and parametric weather products.
