Climate Change: Impacts on Insurers and How They Can Help With Adaptation and Mitigation

Climate change is already affecting the global insurance industry. These changes are often seen as being negative, although opportunities also exist. Other areas of insurance coverage may also be affected in addition to property damage. The potential for third-party liability claims from climate change is less well understood but has even greater potential to affect the industry. Financial assets held to meet claims and provide a capital buffer may also be affected. Therefore the balance sheet of an insurer may be damaged from all sides. Insurers cannot force policyholders to mitigate CO2 emissions, but they can give them a choice and a number of them are already offering such policies. They can also take steps to reduce their own carbon emissions. Insurance is adaptation; there are a surprisingly large number of small to medium companies that do not have catastrophe cover, so increasing insurance penetration of these markets would be an adaptive measure. Insurers will continue to lobby governments for appropriate weather defences to keep areas insurable for as long as possible. Non-traditional forms of insurance are available (such as those based on weather indices with parametric triggers) and it may be possible to continue to offer these for longer than traditional insurance. They do bring basics risk with them, and therefore possibly reputational risk to the industry. Insurers can only pool risk; we cannot insure our way out of this problem, but we can help to spread the impacts where possible.