How does climate change affect the insurance industry?

Extreme-weather events are escalating and becoming more severe.

Climate change and insurance companies are in unique positions when it comes to climate risk.

Climate risks pose massive challenges for insurance companies since they are directly exposed to the aftermath of climate change disasters through their insurance commitments. To achieve higher resilience, insurers should use a holistic approach to addressing climate risks. 

The Cost of Climate Change for Insurance Companies

The two brackets of Climate Risks are Physical Risk and Transition Risk. The former refers to the effect of extreme weather events on socio-economic conditions. While the latter refers to the changes in policies moving towards a low-carbon and greener economy.

Extreme droughts, intensified wildfires, and severe weather such as hurricanes, tornadoes, and floods, can wipe out communities and their livelihood.

These physical risks can lead to a hike in the number and severity of insurance claims. Thus, climate change is naturally a high priority on the agenda of insurers. 

Reuters stated that insured losses from natural catastrophes totaled around $120 billion last year, second only to the $146 billion in damages during the hurricane-ridden year of 2017. The annual tally by Munich Re, the world’s largest reinsurer, is higher than an estimate of $105 billion that competitor Swiss Re published last month.

Contact us here and find out more on how CLIMATIG can help you navigate these risks.

 

Photo by Michael Held on Unsplash
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