#2 Climate change with Flavia Grilli

Climate change is such a vast and ever-changing matter whose developments and consequences could be discussed for ages. But today we want to focus on how it impacts industry and subsequently the insurance sector.

To do so, we first need to have a look at the current facts and figures. These might be concerning, but bear in mind that governments across the world are already putting plans into motion to create a better future.

So, let’s get started!

What do you need to know about climate change?

There’s no rewind button for the health of our planet – a fact probably known by many but whose impact is only understood by few.

That could be because the consequences of climate change don’t feel immediate, but rather something you picture decades or centuries from now. And this isn’t due to ignorance, but rather misinformation.

So what are the facts? And what can we do about it?

“Factual, data-based information about climate change should be spread more comprehensively, so the general awareness increases – without unnecessary fear-mongering.” 

Current data shows that there is a 50/50 chance of a 1.5 °C temperature increase above pre-industrial levels by 2035 at the latest.

But what’s the significance of this number?

1.5 °C is the threshold for global warming as agreed upon by 196 countries in the Paris Agreement. Scientists presume that a temperature rise of this magnitude will lead to an increasingly uninhabitable planet, with a 2° C temperature rise being the catastrophic threshold – an event we had better plan to prevent.

What are the consequences exactly?

• Increased climate migration due to uninhabitable areas
• Rising sea levels, projected to grow 60-80cm by the end of the century, causing increased flooding, reduction of available fresh water, and loss of space among other things
• Loss of biodiversity and extinction of whole species
• Economies and industries globally will be impacted strongly, with agriculture taking a severe hit, meaning we’ll need to find ways to mitigate the loss of certain resources such as crops and plant life

As daunting as all of this may sound, there is hope. The Paris Agreement shows that the willingness for improvement is there. And although we may be too late to reverse the damage already done, we can and are developing solutions to slow down climate change now for the future. We will also adapt and create suitable coping mechanisms for the changes already affecting our world.

And that’s where insurance will play an important role.

So, what’s the impact of climate change on the insurance sector?

As of right now, the insurance sector is undergoing a transformation. More and more the focus is shifting from claims compensation to loss prevention.

All insurers will have to introduce a vast product and service portfolio to manage the numerous consequences of climate change. But perhaps more important will be risk management, since the number of claims related to natural and atmospheric hazards will increase dramatically meaning in the long run clients will need to invest more in preventive measures. The insurer will help them to achieve this.

How can insurers support clients in this shift to a preventive mindset?

“The future is all about mitigating risks since recovery is not possible anymore. We’ll soon hit the point of no return. Now, we have to prepare our clients accordingly for the consequences of climate change.”

Flavia Grilli

Being aware of the challenges ensuing from climate change is the first step, but the real task is providing suitable solutions.

For insurers, this means assisting our clients in understanding the level of risks they face now and how the severity will increase over time. Therefore, we should consider the consequences for them and provide them with a detailed review – especially in Property Insurance, where the impact of climate change will be most noticeable.

Let’s take floods for example: while the risk level could be a solid 3 now at a certain location, it could be at 10 by 2030 if the region suffers from severe weather events – something experts could predict with enough data.

Analysing and knowing the risks means we can think about solutions. In the aforementioned example, this could mean something as simple as rethinking the method of storage – maybe switching to high-bay warehouses – or relocating to a safer location.

Of course, there are other lines of business also impacted by the developments. Especially supply chains will be negatively affected by weather conditions, which could lead to a rise in business interruptions, for example, with loss and damage of cargo if we consider the international transport routes themselves.

Business Impact Analysis and optimisation of supply chains will be key to reducing the severity of these risks and preventing financial and operational consequences.

Another largely impacted sector is construction which is highly dependent on environmental factors such as placid weather and suitable building sites. But fortunately, this is something that can be managed by smart digital solutions evaluating the adequacy of building plots based on the environmental conditions and forecasting weather events that would impact the construction progress.

It’s clear data will be an important part of risk management in the future – even more than it already is. And risk management itself will be invaluable, meaning that working closely with risk engineers and specialists will be the “new normal” and the only way to really mitigate what’s already happening.

While out-running climate change is impossible, we’ll be able to adapt and prevent further destruction if we prepare NOW.

Of course, we want to support the deceleration of climate change ourselves and are therefore part of the UN Principles for Sustainable Insurance (PSI) – a promise to get our company on track towards a more sustainable future.

While prevention means investing in the safety of their companies, our clients and companies, in general, will benefit in the long run – because fortifying their business once is better than paying the price of climate change over and over again.

What are your thoughts on the impact climate change has on the insurance industry? Let us know in the comments!