Climate change is a hot topic on many fronts, and insurance is playing a key role. Some insurers and industry groups are promoting adaptation strategies, including modifications to insurance programs. The Insurance-Canada.ca sponsored Insurance 2023 Working Group is discussing the role that technology is and will play in supporting insurers. Our question: how is climate change impacting your business now and what do you anticipate in the future?
Insurance organizations and associations ….
Canadian associations are taking leadership roles in promoting mitigation and adaptation strategies. For example, Insurance Bureau of Canada (IBC) has set adaptation to severe weather as a priority, and has begun to work on projects: promoting improvements in infrastructure, communicating with consumers on methods to protect themselves and their property, and working with governments at all levels to promote and implement adaptation strategies.
Also, Canadian P&C insurers have established The Institute for Catastrophic Loss Reduction (ICLR), “a world-class centre for multi-disciplinary disaster prevention research and communications.” Affiliated with University of Western Ontario, ICLR staff work to promote loss prevention strategies with home builders, home owners and small businesses. It also does research and consultation to promote actions to develop “resilient, sustainable, vibrant and prosperous cities“.
Internationally, Lloyd’s has made adaptation to climate change a key strategy. It published Managing the Escalating Risks of Natural Catastrophes in the United States, a report which “sets out nine key principles for addressing the issue of rising losses from extreme weather events and other natural catastrophes in the US.” Chief among the recommendations is that “the first step in protecting US property owners from natural catastrophe losses is ensuring that there is a healthy, private insurance market and that government intervention is kept to a minimum.”
Data and technology are key elements …
One of the other recommendations of the Lloyd’s report directly addresses data and underwriting: “The insurance industry needs improved data collection, hazard mapping and other tools to manage increasing natural catastrophe risks in its underwriting processes. These overlap to some extent with what local and regional adaptation planners require to plan and make recommendations for government funded or mandated risk mitigation and adaptation measures. Additional data collection, tools and research are important to identify future trends and anticipate future risks of natural catastrophes, as well as to better understand current risks.”
As a group, The Insurance 2023 participants classified Climate Change as sixth most important (out of 11) external factor impacting the industry over the next decade, more significant than Demographics, but less significant than the Economy.
It seems clear that coverage rating, underwriting practices will be under pressure as the frequency and severity of perils changes. More and better data on weather patterns and exposures are key to profitable management of risk portfolios and underwriting of specific risks. For example, there is a trend now to surcharge replacement cost covereages of properties based on the condition and age of roofs.
Using the data to construct more sophisticated models will benefit insurers, but will be a challenge for insureds to understand. Because of the complexities, agents and brokers will be required to undertake consumer education programs. This may be an opportunity for independents to retake market share from direct marketers, but only with an investment in higher levels of customer education and understanding of the new models.
How is Climate Change impacting your business activities …
Climate change is a many-headed beast on several levels. It takes in building codes, complex weather models, multivariate rating and underwriting schemes, consumer education, and more. Insurance hasthe opportunity to play important roles throughout.
So we’d like to know what you are doing in your area? Are consumers asking? Do local governments need help preparing? Let us know.