Adaptation to Climate Change: Threats and Opportunities for the Insurance Industry

In this paper we explore why adaptation to climate change is such a critical issue to the commercial success of the private insurance industry. We highlight both the risks arising from inadequate adaptation to the impacts of climate change, and the opportunities presented by playing a role in the global response to adaptation. We demonstrate that the success, or not, of adaptation to the impacts of climate change will be relevant to both the underwriting and investment operations of (re)insurance companies. In the short term, climate change will affect underwriting practices by necessitating risk quantification approaches that include a forward-looking view of risk that is not purely grounded in historical experience. In the longer term, insufficient adaptation in areas of rising risk could threaten the concept of insurability itself, by limiting the availability and affordability of private insurance coverage. Furthermore, we demonstrate that activities that incentivise and enable adaptation not only give rise to commercial opportunities and reputational reward, but are increasingly necessary for the sustainability of the industry