The existing global risk protection gap of US$1.7 trillion may open up many new opportunities for insurers, according to the ClimateWise network.
The voluntary group, which is made up of 28 leading insurance firms, warns that extreme weather disasters have put this year on track to be one of the most expensive on record, urging the sector to redouble efforts to tackle the huge shortfall in global insurance cover.
The Climatewise initiative published an update this week detailing how a growing 'climate risk protection gap' has been exposed by 2017 events such as Hurricane Harvey in Texas — which alone cost the US$180 billion in losses, with only one in five homeowners in Greater Houston having flood insurance - as well as devastating floods in India and Africa, storms across the Caribbean and heatwaves and fires in California.
Just 30% of catastrophic losses over the past 10 years were insured, according to the ClimateWise Principles Independent Review 2017, an annual assessment of the group's members which include Aviva, Allianz, Lloyd's, Prudential, Swiss Re, Willis Towers Watson and others.
Moreover, in developing countries, insurance penetration is even lower as it is often seen as unaffordable by many communities, leaving poorer nations highly vulnerable to droughts, hurricanes or floods, the group said.
The COP23 UN climate change summit in Bonn last week saw the G20 spearhead a major new insurance initiative — dubbed the InsuResilience Global Partnership — which will aim to provide insurance cover and climate resilience support to an extra 400 million vulnerable people by 2020.
The chair of ClimateWise Maurice Tulloch, who is also chairman of global general insurance at Aviva, said while many global insurers were now bolstering their strategic response to climate change by aligning their strategies with the guidelines of the Financial Stability Board's Taskforce for Climate-related Financial Disclosures (TCFD), much more work was needed to extend insurance cover globally.
"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," he said. "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."
However, the insurance gap and the urgent need to improve the climate resilience of cities - where more than 50% of the world's population now lives - also presents huge opportunities for the insurance sector, according to ClimateWise director Tom Herbstein.