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2017 Set to Be Among the Most Expensive on Record After Year of Climate Disasters, Insurance Leaders Warn

last modified Nov 21, 2017 10:33 AM
21 November 2017 – A climate risk protection gap of US$1.7 trillion caused by extreme weather over the past decade opens up many new opportunities for insurers, says ClimateWise.

Natural disasters and extreme weather impacting every corner of the world mean 2017 is on track to become one of the most expensive on record, according to ClimateWise, a global network of 28 insurance industry organisations.

Hurricane Harvey, which caused US$180 billion in losses when it hit Texas in August, was just one of the many events that exposed the growing climate risk protection gap and the urgent need to improve the resilience of cities. In particular, the devastation highlighted the pressing importance of insurance with only one in five homeowners in Greater Houston having flood insurance, and insured losses amounting to less than US$19 billion – or just 10.5 per cent - of the total losses.

In developing countries, insurance penetration is even lower, leaving countries highly vulnerable when floods, droughts or hurricanes strike, as seen in Bangladesh and India.

“Our industry has been shaken by climate perils impacting urban centres and 2017 is on track to become one of the most expensive years on record,” said Maurice Tulloch, Chairman of Global General Insurance at Aviva and Chair of ClimateWise, the network convened by the University of Cambridge Institute for Sustainability Leadership (CISL). ClimateWise, which is committed to helping insurers and society respond to the risks of climate change, has published The ClimateWise Principles Independent Review 2017, an annual assessment of its members.

“The climate risk protection gap presents insurers with one of our industry’s most profound challenges. The cost of extending sustainable insurance cover is now simply not affordable in many places. A proactive response is required.”

Throughout the past decade, just 30 per cent of catastrophic losses were insured, producing a cumulative shortfall of US$1.7 trillion, according to ClimateWise member Swiss Re. The majority of this shortfall was borne by government and civil society.  
 
With 50 per cent of the world’s populations now living in cities, and 1.5 million people migrating to urban areas every week, improving resilience to climate-related disasters is more important than ever.

“Cities are at the epicentre of the climate risk protection gap crisis, given their concentration of economic activity and vulnerability,” said Tom Herbstein, ClimateWise Director. “The challenge is how to extend insurance cover in a world where climate risk exposure continues to grow.

“While the climate risk protection gap presents a very real challenge for cities, there are also many opportunities
for new partnerships and products. Insurers must start proactively exploring where, within their own value chains, and collaboratively across the industry, these opportunities lie.”

For the past 10 years, ClimateWise members have been working towards this by benchmarking their response to the protection gap in line with The ClimateWise Principles.

As the first disclosures emerge from the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD), ClimateWise has found continued increases in total average scores to 60 per cent. One member scored 91 per cent, the highest score yet for a ClimateWise member.

“ClimateWise members are already on the front foot with regards to implementing the TCFD recommendations. They have been voluntarily considering and disclosing their strategic response to climate change for a decade,” said Mary Schapiro, Special Advisory to the Chair of the TCFD and former Chair of the US Securities and Exchange Commission.
 
“The next step for them will be to begin the process of identifying and quantifying the financial impacts of climate change, exploring how resilient their strategies are to different climate scenarios, and encouraging others to do the same.”
 
The alignment of The ClimateWise Principles with the TCFD recommendations allows members to proactively lead and support the TCFD disclosures, opening up new opportunities across the public and private sector for building resilience.
 
The ClimateWise Principles review highlights clear areas for improvement including further integration of climate change-related initiatives into core business strategies and greater board-level oversight on climate change and sustainability.  
 
ClimateWise research is also actively investigating how the transition and physical risks of climate change has significant implications for both insurers’ exposure and the exposure of other parts of the financial system. Insurers, with their extensive risk management expertise, have a significant role to play in helping other parts of the financial services sector meet their own TCFD obligations.

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