Briefing: Changing climate now stretching industry’s ability to offer cover

By Jon Guy

In the past two weeks, news feeds have been dominated by the issues with – and the impact of – climate change.

The Intergovernmental Panel on Climate Change issued its AR6 synthesis report: Climate change 2023 report last week (20 March 2203) on the world’s efforts to combat climate change – and the results were damning.

The world has the ability to halt global warming but is currently doing far too little to make anywhere near the required impact, it said.

Closer to home, Swiss Re’s UK and Ireland chief executive Jason Richards voiced his concerns over the growing impact of climate change in the UK.

The reinsurer’s latest Sigma report, also published last week (22 March 2023), put the insured costs of natural perils in the UK at £0.74bn in a year when the country recorded its highest ever temperature.

Richards explained: “Known for its wet and windy weather, windstorms and floods are both significant contributors to the loss figures we see in the UK today.

“At the same time, higher average temperatures resulting from climate change are increasing the intensity and frequency of heatwaves during the summer and the volatility of existing weather patterns in the winter.

He warned that the situation was set to worsen in the years ahead, with heatwave and flash flood risk intensifying.

Reaching limits?

Given the stance reinsurers took on natural catastrophe risks at the 1 January renewals, Richards’ comments on how he sees the future role of the industry will raise some eyebrows.

“While the (re)insurance sector has a key role to play in boosting resilience against such events, its ability to curb resulting losses has its limits,” he said.

“Insurance is no substitute for a robust climate mitigation plan and other adaptation measures to lessen risks.”

There we have it. The (re)insurance sector is increasingly drawing the line in the sand.

The industry is now in the middle of its campaign to manage the expectations of the policyholders and national governments as the true scale of the risks the changing climate will pose to society and the (re)insurance industry become increasingly apparent.

The call for a “robust climate mitigation plan” echoes the views of the World Economic Forum’s annual risk report earlier this year, in which there was a subtle shift in focus from the insurance of climate risks to adaptation in order to mitigate those risks.

The question for the industry is now how it will successfully manage the public response.

When the sector begins to say no to risks that it has covered it in the past because they are becoming simply too big and hot to handle, how will the world respond?