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Insurance groups ‘unprepared for climate impact’

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The Sustainable Insurance Forum and the International Association of Insurance Advisers have released a draft paper on climate change risk, showing how the crisis may affect the industry in the areas of underwriting, investment and regulation.

It is likely all insurance companies will be exposed to climate risks, and the sector must become resilient, the paper says.

Reinsurers are well positioned to manage the physical risks, but other insurance businesses may have little understanding of how climate change may affect their activities and operations, it warns.

Life and health insurers are, in many cases, only beginning to explore the impacts of climate change mortality on underwriting portfolios. Agricultural insurers may be affected by farmers’ reduced ability to grow certain types of crop.

The cost of reinsurance may become prohibitive in smaller markets, creating an insurance gap, the paper says.

Climate risks must be addressed at board level, and must be integrated across risk management, compliance systems and insurance business lines. Insurance practitioners must also be trained to utilise relevant climate-related risk information in everyday activities.

The exposure of insurance companies to climate change through their underwriting and investment activities may affect their capacity to write cover and pay claims, according to the paper.

A series of major hurricanes and other natural disasters last year set a record for insured losses, at an expected $US135 billion ($173.5 billion), it says.