The impacts of climate change can be insured but it needs the industry to get ahead of the curve rather than seek to react to the impact of the changes when they have occurred.
The Swiss Re Institute has issued its latest sigma report “Natural catastrophes in times of economic accumulation and climate change” which expects says that global warming will lead to growing intensity and frequency of severe weather events, but also to more uncertainty in their assessment.
Edouard Schmid, (pic) Chairman of the Swiss Re Institute and Group Chief Underwriting Officer at Swiss Re said the current global pandemic has pushed climate change out of the minds of many, but the issue was still there and needed to be addressed.
“Covid has impacted out lives like other issue in many years,” he said. “For Swiss Re we will deal with the implications if the pandemic.”
He added that the industry could not take its eye of the issue of climate change.
“The pandemic is serious but it will end, climate change will not, and it is why we need to take action now.”
The report said the market needed to better understand threats in order to become more proactive.
Swiss Re said that weather risks, with adaptation actions, remain insurable.
However, it added insurers need to adapt to a dynamic risk landscape by closely monitoring and incorporating socio-economic developments, the latest scientific research on climate change effects, and the status of local risk mitigation measures in their modelling.
“Many of today’s catastrophe models are benchmarked against historical loss data, which does not reflect the current level of urbanisation, and hence do not fully account for today’s quickly rising exposures, changing socio-economic environment and climate,” said the report.
“To uphold the insurance risk transfer model as a powerful tool to foster resilience, insurers need to adapt before, not post events,” added Martin Bertogg, Head of Catastrophe Perils at Swiss Re. “To this end, insurers should be wary of historical loss records in understanding today’s state of the socio-economic environment and climate. Averaging out over a past spanning multiple decades can lead to distorted risk assessment.
“Typhoon Hagibis (below) is a case in point. Japan has always had high exposure to typhoon risk, and with huge investment in coastal and inland flood defence following the devastating typhoon events in the 1950s and 1960s, the re/insurance industry had considered flood risk in Japan to be largely mitigated.”
Both he and Mr Schmid warned the world’s continued urbanisation was storing up problems for the future.
Swiss Re estimated that it was likely that new areas of urban development the size of New York city will be created every month for the next 40 years and much of the development will be in areas which are already prone to natural disasters on coastlines and in areas of forest and wilderness.
The report said economic and insured losses resulting from such events will rise in the coming decades, and this presents a major threat to global resilience.
It added worldwide, economic losses from natural and man-made disasters in 2019 were $146 billion, lower than $176 billion in 2018 and the previous 10-year annual average of $212 billion.
The global insurance industry covered $60 billion of the losses, compared with $93 billion in 2018 and $75 billion on average in the previous 10 years.
While severe weather events were still the main driver of overall losses in 2019, amplified by socio-economic developments in affected areas and climate-change effects, the decrease in losses primarily stem from the absence of large and costly hurricanes in the US.
“Economic development and ever-increasing population concentration in urban centres, alongside changes in climate, will continue to increase losses due to weather events in the future,” said Mr Schmid, “Our industry can play a key role by partnering with clients and governments to develop scalable solutions that support the transition to a low-carbon world by managing risks associated with renewable energy projects and making these more attractive to investors with re/insurance risk-transfer backing”.