- Where Insurance & Technology Meet

Climate Change and Impacts on Insurance

I must confess that the topic of climate change had not been a central focus of my earlier insurance & technology blogs. I know that there are changes occurring on the earth and in the atmosphere, and that these changes have the capacity to disrupt human activities and natural cycles alike. But I always assumed that “business as usual” would continue, for all of us – and the planet.

I was wrong.

When I started to look deeper, I found that the ongoing shifts are significant for all humans, and for livestock, wildlife, insects, and the earth itself. And the consequences of reaching certain thresholds will not be pretty.

But there is some hope … sort of …

The first big hint

When it comes to innovation and the creation of new tools, one of the foremost organizations worldwide is the US government’s National Aeronautics and Space Administration. NASA is well-known for its accomplishments in aeronautics and (literally) in space, but its focus is not exclusively extraterrestrial.

In the 1960s, geoscientists believed that Earth’s climate changed exclusively over intervals of many thousands of years. This was wrong. By 1979, a study of the impact of carbon dioxide on the climate put it differently, finding “no reason to doubt that climate changes will result and no reason to believe that these changes will be negligible.”

In 1977, according to NASA, the “US Congress lost interest in planetary exploration, primarily due to high inflation.” But studying the earth, and issues of “global change,” was more cost-effective, and so the organization’s research focus moved closer to home, and in 1984, a revision to the Space Act broadened NASA’s mandate to include “the expansion of human knowledge of the Earth.”

Moving to now – and with insurance

The Climate Action Network is an umbrella group of environmental non-governmental organizations active on the issue of climate change, specifically:

a worldwide network of over 1,100 NGOs in 120 countries working to promote government and individual action to limit human-induced climate change to ecologically sustainable levels.

The prospect of climate change in its totality is still tough to grasp, perhaps because we think we can simply make a few improvements to our homes and adjustments to our lifestyles, and all will be well, at least with insurance. The scary stuff is just too hard to get our minds around. But the reality is that we need to focus, to be constructive, and to get to work.

The insurance sector is on the front line of the climate change issue; extreme weather events, such as flooding, storms, droughts and heatwaves, have become more frequent and more severe. And we have seen a corresponding increase in pay-outs to policyholders.

Mike Scott, a Forbes contributor on Markets, shared an excellent article in May 2018, titled “Insurers Will Be Hard-Hit By Climate Change, But They’re Not Investing In The Low-Carbon Economy.”

Scott notes that the impacts of severe weather are a growing reality and a wake-up call for the insurance industry. And yet “the sector is not aligning itself with the emission-reduction targets set out by the Paris Agreement” (emphasis added).

Moreover – as of May 2018 – “less than 0.5% of assets invested by the world’s 80 largest insurers are in low-carbon investments that provide solutions to climate change.” Scott  notes that “progress is very uneven across different regions.”

Scott quotes Pavel Kirjanas, the author of a report by the Asset Owners Disclosure Project (AODP), who “applauds the leading and innovative approaches taken” by insurance industry leaders.

There is no time for relaxation and no justification for a sense of security. Kirjanas points out:

While the world is being shaken by climate-induced catastrophes, the world’s largest insurers keep pressing the snooze button. US insurance companies seem complacent about portfolios that put us on a disastrous six-degrees pathway.”

Where do we go and how to get there?

We are now 18 months away from Scott’s & Kirjanas’ strong article from Scott’s 2018 Forbes.  In Canada, we have folks who are reviewing, testing, and introducing a few insurance products.  For example, Canadian’s insurance Trisura is an earlier insurance leader.  Certainly, there are others in North America who will be delivering.

But will there be enough traction?  I would appreciate your thoughts.


Looking Ahead To ICTC2020

Insurance faces new and evolving risks shaped by factors including climate change, new technologies, and shifting societal norms and expectations.

Climate change, specifically, is becoming more significant for insurers, brokers and agents. Damages and pay-outs will have to be recalibrated based on a determination of what is within the underwriters’ capabilities.

The 2020 Technology Conference, “20/20 Foresight: Keys to Success in a Dynamic World,” will be held February 25-26, 2020, at the Beanfield Centre, Exhibition Place, Toronto. Online registration is open now, with the lowest early-bird rates in effect until December 31, 2019.


References & Further Reading