Climate change will be challenging for insurance companies, says Moody’s

Climate Change - Insurance - Earth in Flood and Fire

A new report revealed the impact of warming climates worldwide on the insurance industry.

The impact of climate change on the economy will have an increased liability risk for insurance companies. Catastrophes related to extreme weather are becoming more severe and frequent, according to a Moody’s Investors Service report.

The report pointed to the rising instance of weather disasters like Hurricane Harvey in 2017.

Moody’s Investors Service recently released a report. It investigated the economic aftermath of climate change. Insurance companies will face an increased liability risk from more frequent and powerful weather catastrophes, said the report.

Problems caused by the planet’s warming climate will be greater than the opportunities for property and casualty insurance companies. These problems include risk modeling and pricing uncertainty, greater financial losses, reduced carbon-emitting energy asset value and lawsuits, among others, the Moody’s report said.

Catastrophes are not new to insurance companies, but climate change is making them more expensive.

“Although catastrophic events have always been a key risk contributor to P&C insurers and reinsurers, the continued increase of insured property values along the coastlines and the increased frequency of weather-related catastrophic events will magnify the volatility for these firms,” concluded the Moody’s report.

The credit ratings firm recorded a spike in weather related disasters over the last few decades. These natural disasters include droughts, floods, severe windstorms and wildfires, among others. This type of event has always exist, but climate change is making them worse and more common.

Last year, insurance company payouts reached around $130 billion. The year was struck by many extreme weather events such as Hurricanes Harvey and Irma, widespread wildfires. Comparatively, that figure was $45 billion in 2016. In 1990, it was $25 billion, said Moody’s data.

“It becomes more likely that pricing trends will consistently lag actual loss experience, meaning the industry would be playing ‘catch up’ in raising premiums to match losses,” stated the report.

Moody’s said climate change is making weather events less predictable. Moreover, this trend will only make it more challenging for insurance companies to accurately set their rates as financial risk modeling will be more unpredictable.

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