Climate change is a reality that is getting harder and harder to deny. It’s a fact that it is responsible for melting the polar icecaps, creating increasingly volatile weather patterns and making long-term changes to the environment.
Now a study from Deloitte Center for Financial Services urges insurance companies to prepare for the impact of climate change in their pricing, underwriting decisions and investment decisions.
Industry issues that it identified as reasons for serious concern include:
- The financial fallout from this catastrophic issue could be as expensive as the mortgage crisis that caused the “Great Recession” of 2008.
- More than half of regulators surveyed said that climate change would have a “high” or “very high” impact on coverage availability or underwriting.
- A majority of the regulators expect carriers to adjust to the increasing likelihood of climate change risks.
Regulators not sure what to do
Climate-related losses threaten the ongoing viability of insurers business, but the survey showed a disconnect between regulators and insurers:
- One-third said they were not aware that insurance carriers were preparing to deal with the fallout of climate change.
- Of those who were aware, few were able to say that insurers were prepared or almost prepared.
- One-third of regulators were not confident that current risk models were able to analyze climate-related risks accurately.
Five steps the industry can take
The survey also has suggestions for getting the industry better informed about these issues:
- Raise the profile of this critical topic within organizations
- Improve the assessment of climate risk with better analytics
- Consider all elements of the industry when evaluating climate risks
- Educate policyholder and policymakers on how to reduce climate risk
- Work with government agencies to create appropriate public policies
A major issue now and in the future
Climate change will become a priority for citizens and governments around the world if it is not already. It is in the carriers’ best interest to help drive this dialogue on all levels, so staff and companies need to start putting more resources into finding ways to alleviate the risks that could destroy the industry.