How much longer is our industry (and by that, I mean the general insurance industry) going to keep ducking one of the most (if not THE most) important risk issue of our time: climate change?
Regardless of what your philosophical or political beliefs may be, the evidence is clear that we are facing unprecedented changes in the earth’s climate – well at least going back a few thousand years. And still, the one industry that is supposed to be out in front on risk management has its head in the sand.
As late as last year, Business Insurance reported that “the majority of insurers, particularly in the United States, do not integrate climate change into their risk management practices despite historic flooding in many communities”. Reinsurers, on the other hand, seem to have had a better response to climate change-related financial risk, according to the study by the University of Waterloo called Insurance and Climate Change Risk Management: Rescaling to Look Beyond the Horizon.
As reported in Gloria Gonzales’s article in BI, most insurance companies assumed the risk to property from extreme weather is static and based their premiums on historical data. Insurers have not adjusted as extreme weather events have increased in severity, frequency and unpredictability, according to the study.
“As extreme events become more frequent, insurers that ignore climate change will not put away enough money to cover their claims,” Jason Thistlethwaite, a climate change economist at the University of Waterloo, said in a statement. “To recoup those losses, they’ll have to raise rates or pull coverage from high-risk areas. When this shift happens, thousands of people will lose coverage or it will be unaffordable.”
“Some insurers are better at understanding climate change than others,” Mr. Thistlethwaite said. “These organizations will survive and likely be able to sell climate services to their counterparts struggling to understand the problem. Those that don’t will fail.”
As I blogged more than a year and a half ago, the insurance industry, including captives, needs to step up and lead on this issue. No industry is better placed to clear-headedly explain the risks and provide much-needed leadership on mitigation and sustainability. It’s what we do!
Thank you all very much, and I look forward to hearing from you!