The insurance industry may feel the direct and indirect impact of climate change and so it is in their interest to understand the implications, encourage green investment and advise customers on good practices to reduce their risk exposure.

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Climate change – an insurance perspective
www.dailynews.lk/2017/10/13/business/131154/climate-change-%E2%80%93-insurance-perspective
Friday, October 13, 2017 - 01:00
Business
Wasantha Warnasuriya General Manager Allianz Insurance Lanka
As extreme weather events linked
to climate change increase, so too
do the impacts on human lives,
society and business. Climate
change is as an emerging risk for
businesses and governments
alike with losses of manageable
financial assets estimated to be
between US $7 trillion and
US$13.8 trillion for the private
sector and governments
respectively.
The insurance industry may feel
the direct and indirect impact of
climate change and so it is in their
interest to understand the
implications, encourage green
investment and advise customers
on good practices to reduce their
risk exposure.
The ability of the insurance
industry to manage risks is being
threatened by climate change; at
the same time, frequent extreme weather events are driving up losses and making some
assets uninstallable.
Europe’s largest insurer, Allianz, stated that climate change stands to increase insured
losses from extreme events in an average year by 37% within just a decade. Losses in a
bad year could top US$1 trillion.
Insurers increasingly recognize that it is the lack of action to combat climate change that is
the true threat to their industry and the broader economy; engaging with the problem and
mounting solutions represents not only a duty to shareholders, but also a boon for
economic growth.
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2. The analysis, by a coalition of the world’s biggest insurers, concluded that the ‘protection
gap’ – the difference between the costs of natural disasters and the amount insured – has
quadrupled to US$100 billion (£79 billion) a year since the 1980s.
Experts say, “Over time, the adverse effects of climate change could threaten economic
resilience and financial stability and the insurance industry must also use its risk
management expertise to convince policymakers in both the public and private sectors of
the urgent need for climate action.
“The industry’s traditional response to rising insurance risks – raising premiums or
withdrawing cover – would not help deal with the rising risks.
“The insurance industry’s role as risk manager is under threat. Insurance will struggle to
reduce this protection gap if its response is limited to avoiding, rather than managing,
exposure to climate risk.
“It has been reported that the frequency of weather-related catastrophes has increased six-
fold. As climate-related risks occur more often and more predictably, previously insurable
assets are becoming uninsurable, or those already underinsured are further compromised.”
The economic impact of these natural catastrophes is growing rapidly. This increase is
partly due to an increase in extreme weather, but also due to an increase in assets as
cities and towns have grown, especially in vulnerable locations.
Insurance provides a very important role in providing support for people in their time of
need. Finding viable ways to help society adapt and become more resilient to the inevitable
changes related to ongoing climate change is vital. It is very clear that as carbon dioxide
concentrations increase, we should expect to see more patterns of severe weather
disruption.
The insurance sector plays a key role in the context of climate and disaster resilient
development. Insurers understand climate change because they are trying to manage the
physical consequences of the severe weather experience from climate change; so
insurance can be a really important industry in terms of informing policymakers about the
pace at which they should act in taking preventive measures.
Other actions insurance companies can take are to work with their customers to make them
more resilient to extreme weather and encourage use of insurance.
Use of disruptive technology such as location intelligence becomes relevant because
insurance claims are 100% location-based. It’s all about predicting risk in the insurance
industry and insurance companies better manage risk with location intelligence.
Technology like location intelligence brings to the fingertips of underwriters much quicker,
real-time data to improve decision making at a quicker pace.
Risk assessment uses geographic information to predict risk. Higher risk means higher
premiums. Lower premiums are for areas with less risk. Insurance companies divide areas
into territories.
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3. These territories can be assessed piece-by-piece with risk. People living in more vulnerable
areas will pay higher premiums. Every natural disaster has been mapped in the past. And if
the past is a good indicator of the future – then it’s a start.
Claims management involves processing claims with respect to compensation, restoration
and repayment in response to loss or damage. The use of technology like geographic
information systems assists understanding where risk happens and where customer
locations are. This is the proactive approach to responding to customers quickly and in an
organized fashion.
Insurance underwriting evaluates risk and exposure for potential clients. The underwriting
process decides the amount of coverage, cost and even whether or not the client should be
insured at all.
Location intelligence enables targeted sales and marketing knowing that underwriters
made the right decision.
The process of assessing and disclosing climate risks contributes to insurers’ ability to
evaluate the impacts of climate change on their business.
Disclosure also enables consumers to gauge whether to purchase a policy from a particular
insurance company and it helps regulators to monitor the financial condition of insurance
companies and the progress they are making towards addressing climate change risks.
The opportunities described here have in common the potential for improving the business
position of insurers while addressing the risks posed by climate change.
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