With the increased severity and frequency of natural disasters, insurers face the reality of climate change. It’s driving stronger, more frequent storms to occur around the world, as a heating globe exacerbates the effects of devastating natural disasters. Now, sustainability — of the business and natural environments — is a topic of conversation at the top levels of insurance.
The World Property and Casualty Report, published by Capgemini and Efma, reports that 73% of policyholders consider climate change as one of their top concerns, and around 40% of their insurers share it as a priority. According to the same report, insured losses caused by natural catastrophes have increased 3.6 times in the past 30 years. According to the report, “insured losses for secondary perils − such as wildfires and storms − have nearly doubled within the past decade. The shift is significant as secondary threats accelerate faster than primary perils, such as earthquakes and tropical cyclones. In addition, risks are moving from wind to water-related threats. In the 1980s and 1990s, Natural Catastrophes (Nat Cat) events were split between wind and water, each accounting for 30-35% of total events. Today, water-related perils cause around 45% of Nat Cat events.”
Swiss Re Institute’s annual report notes that natural catastrophes caused an estimated $35 billion of insured losses in the first half of 2022 – 22% above the past ten years’ average of $29 billion. Findings once again show that secondary perils, among other types of natural catastrophes, are increasing on a global scale.
Climate change is a politically charged topic, encompassing a massive debate between governments, environmental groups, corporate interests and everything in between. Carriers are forging an uncharted role for their industry in how, and when, to advocate for policy changes aimed at mitigating or reversing climate change’s effects sustainably, while simultaneously meeting customers’ needs related to these major events.
Travelers, for example, recognizes the climate impacts on consumers, and the company is actively working on risk mitigation and climate risk education.
“Insurance companies have a role to play,” says Eric Nelson, Senior Vice President of Enterprise Risk Management at Travelers said during Travelers’ “Wednesdays with Woodward Webinar Series – Wildfire Mitigation: Cutting-Edge Insights, Tech and Research” panel, held on July 20, 2022. “It’s also insurance companies’ role to educate consumers pre- and post- event. We also provide consumer incentives for appropriate actions. And then at the end of the day, we are here to make a timely response if an event does happen – and have appropriate claim payout.”
Below, we take a deeper look at the multifaceted crisis, and the ways the insurance industry — including carriers, insurtechs, and regulators — are responding.