The most recent report indicated that the situation was worsening far faster than predicted.
The recently published UN climate change report has increased concern in the insurance industry, which is watching the heightened risk predictions.
Insurers and policyholders are now expecting natural disasters with more frequency and severity.
The UN climate change report pointed to increased instances and severity of wildfires, storms, droughts and sea levels that threaten coastal cities. Following this year’s record-breaking wildfires and droughts – with the Atlantic storm season only halfway through – it is far from difficult to believe the United Nations’ heightened warnings.
The Intergovernmental Panel on Climate Change report has increased existing concerns among reinsurance and insurance companies that are faced with decisions regarding the nature and size of coverage they will be able to afford to sell as natural disasters worsen. The United Nations Secretary General Antonio Guterres referred to the report as a “code red for humanity.” Insurers are now asking themselves if they will need to whittle back the coverage or if they will be forced to exit certain markets.
The insurance industry is viewing this as a wake-up call and is now bracing for climate change impact.
“This is by no means the end of insurance,” said former head of Swiss Re’s Sustainability & Political Risk Management Unit David Bresch, now a Swiss Federal Institute of Technology, ETH Zurich and MeteoSwiss professor for weather and climate risks, as quoted in a recent Bloomberg Law report. That said, he did point out that it is acting as an eye-opener for insurers and reinsurers. He added that it will be challenging to reduce the risks that policyholder companies and individuals face. The large solutions simply aren’t in the hands of insurers. Among them, would be swiftly reducing the use of fossil fuel combustion and other sources of greenhouse gas emissions, while simultaneously boosting adaptation and resilience strategies.
Still, according to Bresch in the Bloomberg Law report, it is still possible for improvements to be made, even as global overhauls are not possible through insurers alone. For instance, Bresch recommends broadening the insured pool. This would spread the risk and help to maintain policy affordability.
