May 21, 2014 by Regan Reid
Relatively low insured losses from natural disasters in the first quarter of 2014 shouldn’t give insurers any comfort.
The roughly 70 natural disasters worldwide these past three months caused only about $7 billion in insured losses, says a report from Aon Benfield’s Impact Forecasting. But insurance company balance sheets will take a hit soon enough, because more (and more) natural disasters are coming. In March, the Intergovernmental Panel on Climate Change (IPCC) released the second in a series of reports detailing how climate change will make the world a riskier place. And it specifically says, “Climate change will lead to increased frequency, intensity and/or duration of extreme weather events.”
We’ll see more rain, more intense heat waves, longer periods of drought, higher sea levels—and the insurance industry can expect a lot more claims.
The good news: we still have time to adapt. The bad news: the job will be harder if we keep pumping carbon into the atmosphere. “With high levels of warming that result from continued growth in greenhouse gas emissions, risks will be challenging to manage, and even serious, sustained investments in adaptation will face limits,” said Chris Field, a co-chair of the report.
The insurance industry does recognize the importance of climate change adaptation. The Insurance Bureau of Canada, for example, recently released a tool to identify vulnerable municipal sewer and storm water infrastructure, and thus help prevent flooding. Investing in infrastructure is vitally important to mitigating damage caused by climate change. But it’s a Band-Aid solution.
The IPCC’s report calls for governments to invest in climate change adaptation plans, but recognizes adaptation isn’t good enough. A follow-up report details options for climate change mitigation, including relying much more on renewable energy and far less on fossil fuels.
It’s clear our governments and industries need to make serious commitments to climate change forestallment. So what can the insurance industry do? It could start by offering policyholders more incentives to weatherproof their homes (to help reduce claims in the short term) and reduce their carbon footprints (hopefully, reducing claims in the long term). Some insurers already offer discounts for homeowners who install hail-resistant siding and car owners who drive infrequently. But the industry needs to do more, because as the IPCC has stressed, we must all ramp up mitigation efforts—or face unhappy consequences.
Copyright 2014 Rogers Publishing Ltd. This article first appeared in the April 2014 edition of Canadian Insurance Top Broker magazine
This story was originally published by Canadian Insurance Top Broker.