ClimateWise urges insurers to look for the opportunities in climate risk following an expensive year
ClimateWise met this week for the 10th anniversary of the ClimateWise Principles review. The meeting followed a year that is set to be one of the most expensive on record due to natural catastrophes.
ClimateWise is made up of 28 global Areas for improvement include placing climate change initiatives at the heart of business strategies and greater thought at board-level on sustainability and climate change.
In one session, members focused on the protection gap in cities, which ClimateWise director Tom Herbstein identified as an area where there are a lot of opportunities for insurers if they are willing to be proactive and seek out gaps for new products.
“Cities are at the epicentre of the climate risk protection gap crisis, given their concentration of economic activity and vulnerability,” said Herbstein. “The challenge is how to extend insurance cover in a world where climate risk exposure continues to grow.
Herbstein continued, “While the climate risk protection gap presents a very real challenge for cities, there are also many opportunities for new partnerships and products. Insurers must start proactively exploring where, within their own value chains, and collaboratively across the industry, these opportunities lie.”
In Greater Houston, where Hurricane Harvey hit, insured losses amounted to $19bn (£14.3bn), which is only just over a tenth (10.5%) of the total losses. Just one in five homeowners in the area had flood insurance.
Insurance penetration in developing areas is even lower, leaving at risk cities in countries such as Bangladesh and India even more vulnerable.
2017 is expected the be one of the most expensive years on record, according to ClimateWise, following a year of natural disasters that include hurricanes Harvey, Maria and Irma and earthquakes in Mexico. There has been a climate risk protection gap of $1.7tn (£1.3bn) over the past decade due to extreme weather, according to Swiss Re.
“Our industry has been shaken by climate perils impacting urban centres and 2017 is on track to become one of the most expensive years on record,” said Aviva chairman of global general insurance and ClimateWise chair Maurice Tulloch. “The climate risk protection gap presents insurers with one of our industry’s most profound challenges. The cost of extending sustainable insurance cover is now simply not affordable in many places. A proactive response is required.”
Attendees also took part in sessions on low-high carbon infrastructure investments and on how insurer climate data can be used to inform other parts of the financial sector of concentrations of risk in geographical areas.