Raising premiums in response to the increasing frequency and severity of wildfire losses could become a “social issue,” making cover unaffordable for ordinary people, according to Ernst Rauch, Chief Climatologist at Munich Re.
Speaking with the Guardian, Rauch said: “If the risk from wildfires, flooding, storms or hail is increasing then the only sustainable option we have is to adjust our risk prices accordingly. In the long run it might become a social issue.”
“Affordability is so critical [because] some people on low and average incomes in some regions will no longer be able to buy insurance.”
His comments follow a recent Munich Re report that looked into the effects of climate change on wildfire activity in California.
It concluded that increasingly wet winters and dry summers are spurring the growth of more combustible vegetation and increasing the likelihood of large wildfire events.
“It does not take years of extreme drought conditions in California to create optimal conditions for wildfires, just a couple of months of dry conditions are sufficient,” the report stated.
“Furthermore, our changing climate is also making California hotter, which means that the rate of evapotranspiration has increased. In short, dangerous fire conditions return to California faster today than they did in the past.”
Nicolas Jeanmart, Head of Personal Insurance, General Insurance and Macroeconomics at Insurance Europe, also warned that raising insurance premiums in response to this trend could have a profound social impact.
“The sector is concerned that continuing global increases in temperature could make it increasingly difficult to offer the affordable financial protection that people deserve, and that modern society requires to function properly,” he told the Guardian.
However, re/insurers will deal will further losses if they do not respond to this issue at all, according to Ben Caldecott, Director of Oxford University’s sustainable finance programme.
“Company directors and fiduciaries will ultimately be held responsible for avoidable climate-related damages and losses and urgently need to up their game to avoid litigation and liability,” he said.
Caldecott’s statement contrasts to some degree with recent comments from Munich Re’s CEO of Reinsurance, Torsten Jeworrek, who said that it’s neither possible nor wise for insurers and reinsurers to speculate and make price changes to account for the long-term effects of global warming.
