The uptick in devastating wildfire losses over the last few years should come as a warning to re/insurers still sceptical about the potential impacts of climate change, says Craig Tillman, President of RenaissanceRe-owned risk intelligence and research affiliate WeatherPredict Consulting.
Source: State Department/Doug Thompson
Speaking as part of a lecture in the Old Library at Lloyd’s, Tillman observed that the effects of climate change are coming at a rate harder and faster than what was predicted even five years ago.
“That’s sobering and raises the bar for all of us to be great at the game of managing risk in the context of climate change,” he told attendees.
Tillman also described climate change as a “now problem” that is already influencing the behaviour of various perils, and warned of the consequences if the industry does not pay attention and modify its view of risk accordingly.
The most pertinent example of climate change as a present day issue are the unprecedented wildfire and bushfire events that have burnt through vast areas of California and Australia in recent years, amond other areas.
“This is really kind of like the canary in the coal mine,” Tillman said. “Did you need evidence that climate change was affecting your risk? Well, just look at wildfire as a very good example.”
In the near-term, Tillman sees wildfire as the most threatening peril for re/insurers, due to its potential to increasingly devastate areas with high insured values.
However, he believes that increased wildfire losses could just be the first symptom of a larger climate problem, which may begin to manifest more clearly in the longer term as the influence on risks such as rain-induced flood and tropical cyclone becomes more evident.
“For the most part, we’re talking about extremes,” Tillman told the audience at Lloyd’s. “And that’s the stuff that we all manage. Extremes will have to be dealt with differently, and they’ll probably be more frequent in the end.”
“So the mindset you need to have, in terms of the extra risk and uncertainty brought on by climate change, is really that it’s a signal to act, not to wait and see,” he continued. “You can’t wait, because we’ll be seeing events that were less likely 10 years ago become more likely as climate change takes hold on different problems in different regions.”
But Tillman also urged re/insurers to view the prospect of heightened weather risks as an opportunity for the industry to deliver more innovative products that will help people deal with climate change.
“It’s an opportunity to sit down with your clients and explain to them how climate change can be quantified,” he remarked. “It’s not something to run away from.”
To be there for clients, Tillman argued that re/insurers must strive to be more inclusive in the range of outcomes that they should expect going forward.
“You can be very narrow in your look at climate change,” he noted, “but if you try to be more inclusive about the types of events that you can expect, then you can actually be more of a resource to your clients in enabling them to anticipate climate change.”
