The insurance article in this issue has deliberately soft-pedalled the issue of climate change-related and environmental risk for the industry globally. This is to emphasise that insurers face many secular challenges even without the impact of climate change. But like trade tensions, climate change and environmental risk brings a whole raft of pressures with potentially grave consequences for the insurance industry.
Europe, for instance, has seen a significant increase in natural catastrophe losses, driven by extreme weather events such as floods and wildfires. Regulators are introducing changes in their underwriting codes to cover catastrophe and climate risks.
A recent report from Swiss Re on new and evolving insurance risks pointed out that climate change is driving extreme heat and fungi-related risks, and that more frequent heatwaves have increased the risk of accidents, electrical outages and wildfires and put stress on healthcare systems. According to the report, a combination of heat waves, droughts and wildfire risk has helped trigger some US$74 billion in global insured wildfire losses from 2014 to 2023.
In parts of the US, Australia and elsewhere, weather-related losses have forced insurers to re-evaluate the prices at which they can afford to write and renew business, according to Bain & Company. Property premiums in many US states have risen at double-digit rates in the past few years and a growing number of homeowners can’t afford to insure their homes. In some states, regulators have prevented insurers from charging premiums that are commensurate with rising property values, construction costs, and increased risks of flooding, extreme winds or wildfires.
Deloitte said recently that the insurance industry lags in efforts to alleviate risk associated with the loss of biodiversity and natural resources, warning that these are systemic and long-term challenges with potentially significant cascading effects that can be difficult to quantify and price effectively.
Needless to say, the longer such risks go unrecognised or are deliberately denied, the worse the consequences will be for the insurance industry. The prospects for any genuine, impartial, fact-driven regulatory and policy measures to address these risks appear to be poor, at least in the US.
