Lloyd’s warns underwriters about climate change

The insurance industry must face up to the growing threat of climate change or risk being swept away, according to Lloyd’s, the world’s leading specialist insurance market.
A new report, ‘Climate Change, Adapt or Bust’, published by Lloyd’s, warns that insurers must act now to understand and actively manage risks from emerging threats such as greenhouse gases and rising sea levels.
“Although it’s almost two decades since the UN recognized that climate change was a catastrophic threat to earth, it’s clear that the insurance industry has not taken catastrophe trends seriously enough,” Rolf Tolle, Lloyd’s director of franchise performance, said: “As an industry we must work together to understand and manage these new risks, and to change our behavior.
“Climate change is today’s problem, not tomorrow’s. If we don’t take action now to understand the changing nature of our planet and its impact, we will face extinction.”
Recent scientific evidence suggests climate change is happening faster than previously thought, the report says, and investment in research and a change in industry behavior is long overdue.
Key findings of the report include:
recent natural disasters have revealed the inadequacy of capital and pricing models, so catastrophe models must be updated regularly to keep pace with the latest scientific evidence;
the industry must take a new approach to underwriting, looking ahead and factoring in climate change scenarios, rather than simply basing decisions on historical records especially with extreme windstorm seasons set to continue;
insurers must prepare for the impact of climate change on asset values. Underwriting for profit will be crucial;
insurers must regularly review and communicate conditions of coverage in light of the impact of climate change; and
effective partnership with business and government will be key to mitigating risk.
The report marks the launch of Lloyd’s 360 Risk Project, which aims to generate debate about today’s key risk issues and how best to manage them.
Issues raised in the report will be debated at a session on the 5 July at Lloyd’s.