Climate change insurance needs
Climate change insurance needs
Climate change insurance is becoming crucial in managing risks and protecting communities in the face of increasing climate-related disasters. Insurers face challenges in accurately pricing premiums and assessing risk due to the unpredictability of extreme weather events.
The recent floods in Germany caused 35 billion euros in damages, highlighting the rising costs insurers are encountering. Projections estimate potential damages of up to 900 billion euros by 2050, emphasizing the need for urgent action. Similar situations are observed globally, with the US experiencing numerous weather and climate disasters causing over $800 billion in damages from 2010 to 2019, including severe wildfires in California costing over $24 billion in 2018.
Developing countries face an insurance gap, as brown assets may not have the necessary coverage to transition towards low carbon energy sources, hindering economic development.
Moral hazard is a critical concern in climate change insurance, as insured parties and governments may take undue risks assuming the insurance will cover losses. Addressing moral hazard is essential for proactive and sustainable risk management strategies. Insurers must treat their customers fairly, avoiding unfair exclusions and providing policies that cover expected risks.
Careful market analysis is needed to assess whether the conditions for a private insurance market are met. If not, a balance between the public and private sectors is necessary. Striking a balance between risk management and financial sustainability is a challenge in climate change insurance. Collaborative efforts between the public and private sectors are needed to create a robust insurance ecosystem that fosters resilience and preparedness for the future.
Governments play a crucial role in creating an enabling environment through regulations and policies that promote climate-resilient practices. They can assist with risk assessment, encourage adaptation and mitigation measures, and provide financial support to enhance climate resilience.
Insurance companies must actively engage in risk modelling and data-sharing initiatives to improve risk assessments and develop comprehensive models. They can also contribute to risk mitigation through preventive measures in product design and underwriting processes.
Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)
Eurofi Views Magazine chapters
Petra Hielkema - European Insurance and Occupational Pensions Authority (EIOPA) | Romain Paserot - International Association of Insurance Supervisors (IAIS) | Eva Wimmer - Federal Ministry of Finance, Germany | Dean Cameron - Idaho Department of Insurance | Claire Souch - Moody’s Analytics RMS | Sonia Barrière - CNP Assurances | Patricia Plas - AXA | Jean-Jacques Bonnaud - EUROFI
Petra Hielkema - European Insurance and Occupational Pensions Authority (EIOPA) | Romain Paserot - International Association of Insurance Supervisors (IAIS) | Martin Landais - Ministry of the Economy, Finance and Industrial and Digital Sovereignty, France | Stéphanie Yon-Courtin - European Parliament | Cyril Roux - Groupama | Gerardo Di Filippo - Assicurazioni Generali | Bruno Lepoivre - Crédit Agricole Assurances | Jean-Jacques Bonnaud - EUROFI