F&C Asset Management has identified seven key trends that will affect the insurance industry as a result of climate change:
1. Extreme weather events have become more frequent and more severe.
2. Over the years, they have struck more heavily built-up areas, meaning that economic losses have increased dramatically.
3. Extreme weather events, such as droughts and floods, have long affected developing regions with low levels of life and health coverage. More severe events are increasingly affecting developed areas, thereby threatening further economic losses to the sector.
4. Gradual changes in weather patterns have also resulted in economic impacts that are less visible, but potentially very severe — including long-term damage to soil, marine and forest ecosystems. These, in turn, threaten vital economic activities, including agriculture, shipping, power generation, fisheries, and many water-intensive sectors.
5. The insured share of total economic losses has risen sharply. This directly affects general insurers.
6. The uninsured share of economic losses is absorbed by the wider economy, and is reflected in the impaired investment returns of both life and general insurers.
7. Overall, the past may no longer be an accurate predictor of the future, thereby impairing the sector's ability to model risks and set prices appropriately.
F&C Asset Management has therefore written to 29 leading insurers asking them about their climate change strategy. They have asked the companies a number of questions, including:
• How might underwriting be adjusted to reflect increases in climate-related risk?
• How is climate-risk exposure evaluated in equity investments?
• Do companies offer any products that might incentivise reductions in emissions?
• What public policy changes could be made that would allow insurance pricing accurately to reflect underlying climate-related risk?
We'd like to hear from insurers that have received a letter from F&C Asset Management. What have you done to address climate change? Please email your thoughts to news@instimes.co.uk
