Insurance coverage fails to keep up with growing climate-related losses

Cordinated action is urgently needed against the rising threats posed by extreme weather and natural catastrophes, says Zurich Insurance Group (Zurich).

The global insurer, in its paper, titled “Climate Risks: Strategies for Building Resilience in a More Volatile World”, outlines the increasing costs of these events, highlights the role of insurance, and offers recommendations for policymakers to build resilient societies and economies. Extreme weather events such as hurricanes, floods and wildfires caused about $2tn in economic losses over the past decade according to the International Chamber of Commerce.

“The insurance industry is uniquely positioned to help strengthen resilience to physical climate risks,” said Ms Alison Martin, CEO EMEA and Bank Distribution. She added, “However, addressing the escalating costs of extreme weather and natural catastrophes requires collective and immediate action.” Insurance coverage is not keeping up with growing losses, leading to more underinsured or uninsured households and businesses.

Zurich, through its report, provides a roadmap for how governments, insurers and communities can collaborate to meet the growing challenges posed by extreme weather and natural catastrophes.

New approaches

Zurich advocates for a new approach that focuses on risk reduction and extending insurance coverage to protect communities and businesses. The insurance industry can provide risk management insights and capabilities to strengthen resilience to physical climate risks. By de-risking capital flows, the industry can also help unlock the necessary finance to build the infrastructure required to deliver that resilience, enhancing the protection provided by insurance.

The paper makes three recommendations for policymakers:

1. Invest in risk prevention and reduction: Governments should make formal commitments to strengthen climate resilience through robust strategies and the implementation of building codes and urban planning regulations. Measures include building climate resilience into national planning, establishing national centers of competence, and making more effective use of technology, data analytics and scientific research.

2. Enhance insurance accessibility and affordability through supportive policy frameworks: Governments can raise awareness of extreme weather risks and offer incentives for households and businesses to obtain adequate insurance. This can be achieved by establishing a regulatory environment that sustains market capacity, attracts new entrants, and fosters competition and innovation to broaden coverage options for consumers.

3. Develop public-private risk-sharing solutions to raise finance climate resilience: Innovative solutions such as blended finance and (re)insurance pools can help share resources and distribute risks, improving affordability and preventing the development of “insurance deserts.” Public-private partnerships (PPPs) can enhance insurance accessibility and affordability, especially in higher-risk areas.

Source: asiainsurancereview.com