Growing climate insurance gap of US$100 billion requires industry action
Written by Staff Reporter
The ‘protection gap’ is widening and a key role of the insurance industry is under threat as climate-related catastrophes worsen according to two reports published by ClimateWise, a network of 29 insurance industry bodies convened by the Institute for Sustainability Leadership at the University of Cambridge.
It warns in its annual review of the ‘protection gap’ that weather-related catastrophes have increased six-fold since the 1950s. While economic losses have increased five-fold since the 1980s to around $170 billion today, the gap between losses and those covered by insurance has widened from $23 billion to $100 billion annually according to data from Swiss Re.
“The insurance industry’s role as society’s risk manager is under threat,” said Maurice Tulloch, chairman of global general insurance at Aviva and Chair of ClimateWise. “Our sector will struggle to reduce this protection gap if our response is limited to avoiding, rather than managing, society’s exposure to climate risk. As a risk carrier and risk manager, the insurance industry has significant, and as yet untapped, potential to lead others, in reducing this gap.”
In its second report, ‘Investing for Resilience’, ClimateWise says that the insurance industry can start to align its asset management, underwriting and risk management activities to support greater investments in resilience across financial markets. Recommendations in the report include support for green bonds, resilience impact bonds and investments in resilience-enhancing infrastructure.
“The insurance industry will inevitably be impacted by the physical, transition and liability risks that climate change presents,” said John Scott, ClimateWise’s ‘Investing for Resilience’ chair, and chief risk officer, Zurich Global Corporate, Zurich Insurance Group. “Finding viable ways to help society adapt and become more resilient to the inevitable changes related to ongoing climate change is vital.”