Sustainability and Insurance: August Roundup
September 12, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. August’s topic: The new normal: resilience to extreme weather events
Read our summary and analysis below.
Analysis
The new normal: resilience to extreme weather events
During the somewhat quieter month of August, we have seen the expected lull in sustainability-related news from the insurance industry. It seems that thought leaders have used this time to reflect on medium- to longer-term trends in this space, in particular the reality that insurers need to be prepared (and help their customers to prepare) for climate change increasing the likelihood of severe weather events.
Swiss Re’s recent report, titled ‘Changing climates: the heat is (still) on’ put it well. The report considers how rising global temperatures drive more intense hazards and severe weather events. With formerly one-in-100 year frequency loss events likely to become the new normal, it is vital that insurers are prepared for a rise in potential losses in the coming years. Despite a reasonably benign year in terms of large cat events (so far) for insurers and reinsurers, global analytics provider Verisk’s latest forecast suggests that the industry should expect a new normal of $151bn in annual losses from natural catastrophes.
The trend towards this new normal is evident in some markets, with the Association of British Insurers reporting that UK insurers paid out a record £1.4bn to home and business owners in Q2 because of damage caused by adverse weather conditions. Despite government-backed schemes like Flood Re, which has helped insurers offer coverage in flood-prone areas since 2016, more infrastructural investment will be needed to mitigate the impacts of extreme weather.
Insurance plays a pivotal a role here in promoting resilience to climate hazards. For example, the British Insurance Brokers’ Association (BIBA) have been promoting the Build Back Better scheme among UK brokers, boosting awareness of the importance of investing in infrastructure for resilience among their customers. Insurers are responding to a wide range of hazards and partnering with other stakeholders, as shown by the new Zurich Climate Resilience Alliance.
There is still work to be done, however. A new report from the Climate Resilience Dialogue warns that only about 25% of climate-related losses in Europe are insured, leaving the vast majority subject to the likely increase in frequency of extreme weather events driven by climate change. The protection gap between insurance coverage and economic losses is even more severe in other parts of the world. Swiss Re’s report finds that global growth engines like India and China are some of the least prepared to face the growing losses from peril intensification. Insurers can service this protection gap and boost resilience, financing climate adaptation and encouraging policyholders to build back better.
Short-term trends in extreme weather events clearly matter, but so do longer term shifts. Insurers must prepare for the new normal and help the world to prepare too.
Summary
Intensifying weather hazards
Swiss Re report: ‘Changing climates: the heat is (still) on’ (Swiss Re)
Four major weather perils cause expected economic losses of $200 billion annually, according to Swiss Re’s latest report: ‘Changing climates: The heat is (still) on.’ The report explores the insurance impact of floods, tropical cyclones, severe convective storms and winter storms in Europe. The analysis finds the Philippines and the US to be the most exposed to losses as weather hazards intensify. It argues that the insurance industry could play a significant role as long-term investors of mitigation and adaptation efforts, reporting that the economic dividends of adaptation can outweigh associated costs by up to 11 times.
Insurers face $151bn in yearly losses from natural disasters, report forecasts (Financial Times – subscription required)
A new forecast from Verisk suggests that insurers should expect a new normal of $151bn in annual losses from natural catastrophes. Representatives from Verisk state that the past four years, where a surge in property claims from natural disasters have pushed up the cost of cover, should not be seen as outliers but indicative of more permanent impacts of climate change and rising exposure as populations grow in at-risk areas.
UK insurers pay out record weather claims, call for climate action (Energy Monitor)
The Association of British Insurers’ latest figures reveal that UK insurers paid out a record £1.4bn to home and business owners in Q2, as a result of floods, fires and storms driven by adverse weather conditions. The trend towards higher weather-related claims is clear, with this also marking the fifth consecutive quarter in which weather-related claims for homes have made up more than £100m.
Insurers for climate resilience
Biba and Flood Re team up on BBB regional push (Insurance Age – subscription required)
Government-backed insurance initiative Flood Re have joined with the British Insurance Brokers’ Association to promote wider understanding among brokers about the potential benefits of the Build Back Better (BBB) scheme in the UK. The BBB scheme, launched in 2022, aims to reduce the impact of future floods by helping to finance measures for property resilience as part of flood repairs. Brokers play a critical role in communicating with property insurance customers to improve resilience to flooding.
Zurich alliance expands from flood to climate resilience (Insurance Business UK)
The Zurich Flood Resilience Alliance has been transformed into the Zurich Climate Resilience Alliance, reflecting a focus on broader climate risks beyond flooding. Led by Zurich Insurance Group and the Z Zurich Foundation, the alliance of NGOs, research institutions and private sector partners works to evaluate levels of resilience in vulnerable communities and respond accordingly with solutions to climate hazards. According to the Alliance, their initiatives have positively impacted the lives of more than 3 million people worldwide and influenced an increase in resilience spending of over $1.25 billion.
Report calls for action to close climate protection gap in Europe (Insurance Business UK)
A new report from the Climate Resilience Dialogue set out a series of recommendations to reduce the climate change protection gap, between economic losses and insurance coverage. The Dialogue is an initiative of the European Commission, launched in 2021 to bring the insurance sector into conversation with other stakeholders. The report warns that only about 25% of climate-related losses in Europe are insured, leaving the vast majority subject to the growing intensity and frequency of extreme weather events driven by climate change. Key recommendations to address the protection gap include increasing risk awareness, leveraging data for risk assessments and advising policyholders to implement adaptation strategies.
New solutions, new players
Marsh launches first-of-its-kind insurance solution for global CO2 transport and storage projects (Marsh)
Marsh recently announced the launch of a new global insurance solution covering the transport and storage of carbon dioxide, underwritten by Canopius. Marsh state that the advancement of the carbon capture and storage (CCS) industry has been held back by critical insurance limitations which this solution attempts to address. For example, the new solution includes a non-damage trigger for geological CO2 leakage, providing indemnification for the cost of corrective measures.
Renewables MGA Novagen enters market (Insurance Business UK)
Pine Walk, the subsidiary and managing general agent of the Fidelis Partnership (TFP), have launched Novagen: a new MGA specifically for renewable energy. Novagen aims to enhance TFP’s existing offering for the energy transition, underwriting renewables globally across onshore, offshore, construction and operational projects. Novagen will join eight other bespoke MGAs on Pine Walk’s $780 million GWP platform.
About the author
Anna Gardner is a Consultant at Oxbow Partners who has worked on strategic engagements. She recently supported the design and implementation of a follow-only strategy for a global specialty insurer and writes about sustainability for Oxbow Partners’ publications. Anna has a particular specialism in carbon credits, having previously advised a provider of high-quality carbon credits on their communications strategy and led a delegation to the UN climate change conference at COP27. Anna holds a Masters degree in Geography from the University of Cambridge.
