Keeping an eye on the weather
Climate change is complicating the global risk landscape. The effects of global warming are evident in many ways, and extreme weather more frequent and severe.
Higher average temperatures, longer and more frequent heatwaves, rising sea levels, a major cause of extreme flooding, and more severe rainfall are wreaking havoc across the globe. Climate change is also influencing secondary perils so much so that they can scant be considered “secondary” any longer. Elsewhere, higher average temperatures and unprecedented dryness made this past Australian bushfire season the most extreme on record, according to Swiss Re Institute’s sigma publication.
There were 317 disaster events in 2019. Of these, 107, or a third, happened in the Asia Pacific region. The Australian bushfires, flash floods across Southeast Asia, and Typhoon Lekima in China were front and centre in our living rooms and on our news feeds. Still, they did not cause the most damage. When they made landfall in densely populated Japan, Typhoons Hagibis and Faxai left a destructive trail in their wake and resulted in at least USD15 billion in insured losses, according to Swiss Re figures.
Beginning in September 2019 and lasting half a year, the recent Australian bushfire season scorched 16m hectares of area and resulted in US $1.5bn insured losses so far, according to the Insurance Council of Australia.
But for every insured dollar lost, there is at least another $2 that is not covered by insurance. Of the $70bn in economic losses last year, only $20.8bn was insured, meaning about $50bn that could have gone to improved infrastructure, and getting people’s and businesses back on their feet quickly was lost because governments or individuals willingly chose to bypass an insurance solution.
Insuring our Future
Unless there is a significant change in how insurance is viewed as a risk transfer mechanism, the protection gap will continue to widen. Asia’s growth, industrialization and urban migration patterns will see to that.
To keep up with the dynamic climate risks, some of the things insurers can do are to continuously reassess their underwriting processes, incorporate latest scientific findings and strengthen their capacity to deal with natural catastrophes. Working with insurers, end clients and third parties need to find ways to increase societies’ resilience to natural catastrophes. This in turn increases the availability of insurance cover and helps to reduce the cost. Bearing this mitigation in mind, to close the protection gap, we need to keep reminding everyone that insurance is really one of the most reliable, affordable and efficient ways to protect yourself against the risks of climate change.
But insurers also need to innovate. They need to make their products easier to understand and access. A parametric solution – claims that are triggered on pre-agreed conditions – is one way to get more people insured against climate risk and NatCATs. Everyone needs a quick and painless solution to claim especially when getting back to normality quickly is so very important.
The longer the industry leaves climate change unmitigated, natural catastrophes will reach an irreversible tipping point where insurance cover will become unaffordable to many or even worse, no longer available. This cannot be allowed to happen.
COVID-19 has made it an even more challenging year - one that puts everyone’s resilience under greater strain. According to the UN Trade and Development Agency, this outbreak could cost the global economy as much as $2tn. What happens if there is a major earthquake, typhoon, flood or fire in your country at the same time we’re still dealing with COVID-19?
We knew even before 2020 began that we would have to contend with climate risk and its knock-on effects on natural disasters. To deal with two major unknowns like COVID-19 and NatCATs would be an incredibly challenging situation for those impacted. Maybe this was the wake-up call we needed. Maybe seeing rivers run clear, animals coming into urban settings and smog free skies will be something that inspires more of us. There is never a better time than the present to deal with it.