Climate change and the insurance industry
Insurance industry shows concern over climate change
Climate change is often a controversial topic, especially when it comes to whether or not humans are having an impact on climatic events. Usually, the issue is politicized, with certain factions providing some extreme viewpoint on climate change and others suggesting that it is little more than a myth. While the truth of climate change may reside somewhere in between extremes of perception, one thing is certain: The insurance industry is not keen to leave itself exposed to the risks that come with the uncertainty surrounding climate change.
For insurers, climate change is little more than a term. While insurance agents and individuals working for insurance companies may have their own view concerning the phenomenon, businesses are somewhat more pragmatic with their approach to the issue. Many international insurance organizations are unwilling to enter into the arguments surrounding climate change. Instead, these businesses are focusing on the frequency and impact of powerful storms that have been reported throughout the world in recent years.
Powerful storms create turbulence for insurers
Typhoon Haiyan is one of the most recent examples of such storms. The typhoon struck the Philippines in early November and caused catastrophic damage. Currently, the typhoon is reported to have caused some $1.1 billion in damage, but insurers are still assessing the impact that the storm has had. Thousands of people have been displaced by the storm and an estimated 4,015 people have been reported to be killed by the typhoon. Storms are not uncommon in the Philippines, but the strength of typhoon Haiyan is not typical.
Another recent example of an uncharacteristically powerful storm is Hurricane Sandy, which struck the U.S. in late 2012. The hurricane was unlike any other that had been seen in recent years, rivaling the strength of 2005’s Hurricane Katrina. The storm struck New Jersey and New York the hardest, causing some $68 billion in damage. Victims of the storm are still struggling to recover, even a year after Hurricane Sandy had exacted its grievous toll.
The insurance industry has been warning of the increasing frequency of powerful natural disasters. Storms that had been considered once in 100 year events are becoming more common and there are few countries that have protection against such devastating natural disasters. Insurers have become well aware of the impact that these disasters can have. Zurich Insurance Group, for instance, downgraded its revenue targets for the second quarter of this year by 27%, citing catastrophe losses. Other insurers have followed suit, claiming that the frequency of powerful natural disasters represents a significant financial risk.
Swiss Re, one of the largest reinsurance companies in the world, recently reported that severe weather could cause some $160 billion in damage to the global economy, only $70 billion of which is actually covered by insurance protection. Exactly what can be done to mitigate the impact of powerful natural disasters is uncertain, but the insurance industry is beginning to show signs that it is taking the issue of climate change more seriously than others.