Julie Page discusses why we must continue to stay relevant when it comes to protection against weather risks
As I write, extreme heat warnings are being issued across the UK; the week before, a month’s worth of rain fell in a day in some parts of this country, and devastating floods in parts of Europe left hundreds of people dead or missing, while destroying villages. Record temperatures were experienced on the west coast of North America in July, and Canada’s previous national record of 45 °C was raised to nearly 50 °C in British Columbia.
Few reading this will need convincing about the real and present dangers of climate change, but those temperatures are a scorching example of the challenges we face now and in the future, as we help our clients deal with the consequences for life and property from more extreme weather events. But it is also a reminder that we can – and must – as a profession, pull several other levers when it comes to helping society transition to a carbon-neutral economy.
Of course, the insurance profession has long been entrenched in society’s management of weather risk, but as the scale and frequency of weather risk increases all over the world and the cost to insurers grows, leading to higher premiums and/or withdrawal of cover, we are seeing a growing protection gap.
We need to reimagine our propositions and be more reflective of today’s – and tomorrow’s – life choices
Current estimates range between £125bn and £165bn of uninsured losses suffered every year as a result of physical damage caused by climate-related weather impacts. Whether those uninsured losses relate to flooded crops or hurricane-flattened homes, they represent an unmet societal need for more accessible insurance protection.
We must continue to stay relevant when it comes to protection against weather risk, both for existing clients and new markets. That will demand more innovation and a greater use of predictive analytics to price risk, given the absence of historical data related to fast-changing weather patterns and the anticipated impact of global decarbonisation efforts.
But helping clients mitigate the effects of weather risk is not the only role we have to play in the climate-change debate. We can reward and support the clients taking steps towards decarbonising the world with reduced premiums, for example, as well as providing new products to encourage the decommissioning of polluting ‘heavy’ assets and discouraging the development of new assets that do not align with decarbonisation.
And we also cannot ignore the influence we have on the climate-change debate through deployment of the significant financial assets we hold that are invested for the protection of policyholders; and could be directed to organisations and projects with ‘green’ credentials.
Showing green leadership
The recent launch of the Certificate in Climate Risk from the Chartered Body Alliance as well as the Sustainable Markets Initiative Insurance Task Force sponsored by Lloyd’s and HRH Prince of Wales, aiming to “provide climate-positive financing and risk management solutions to support and encourage individuals and businesses around the world to accelerate their transition to a sustainable future” are great examples of the leadership our profession can offer, as we support society in moving towards a carbon-neutral economy by both understanding the transition risk and helping to enable it. We have, as a profession, a key part to play in the green agenda and the decarbonisation debate. In so doing, we can respond to the unmet insurance needs of our clients and ensure we stay relevant, while also helping to lead society to a greener, more sustainable future.
Julie Page is president of the CII