Severe weather and climate change can call insurers' pricing assumptions into question, create work overloads in response to large claims events and potentially lead insurers to cut back on offering certain forms of coverage, according to a survey conducted by Quebec's insurance regulator.
L'Autorité des marchés financiers (AMF) released the study, Managing Climate Change Risk, on Nov. 24. The study includes results of a 2010 survey conducted on the impact of climate change on property and casualty insurers in Quebec. Nine insurers in Quebec answered the survey, representing a market share of 61% in the province.
When asked to list and briefly discuss risks associated with severe weather and climate change, seven respondents observed that unfavourable climatic experiences could call their pricing assumptions into question. Some respondents noted their pricing structures were not necessarily suited to the increased frequency of water damage claims.
Six respondents cited operational issues related to climate change patterns. "This risk centres primarily around a potential work overload to respond to claims for compensation in the event of a catastrophe and the lack of manpower to cope with such a situation," the report says.
Three respondents cited concerns about the impact of climate change on marketing and business development. For example, the escalating frequency and severity of water damage claims could "lead some insurers to cut back on offering specific forms of coverage or coverage in specific markets, which will affect their business regardless of whether or not they elect to cover these risks through anti-selection and according to their ability to distribute the risks," the report says.
Also, one respondent observed that severe weather events are putting pressure on insurers to cover overland flood, which isn't currently covered in Canada.
Respondents also cited the following as risks related to climate change:
• Higher reinsurance premiums (3).
• Reputational Risk (3), which includes an inability to service customers during a crisis, and also partnering with organizations not perceived to be good corporate citizens.
• Moral hazard (1), which characterizes a situation in which policyholders rely on insurers to fix damage rather than take responsibility for acting on their own to mitigate damage.
The full report can be viewed at: