Climate change does not escape the notice of insurers
Climate change is a controversial issue, but not so controversial that the insurance industry would avoid it. Indeed, many insurance groups around the world are beginning to consider climate change a very serious problem that should receive equally serious attention. While climate change has become heavily politicized, the insurance industry is keen to remain somewhat neutral on the matter, suggesting that the potential damages that can be associated with climate change are a more important subject than the cause of climate change or how it is to be mitigated.
Risk Management Solutions, a leading developer of risk models that are used throughout the insurance industry, notes that neutrality is quite important when it comes to the business of insurance. In the past, risk models were drafted largely based on events that have occurred, taking little consideration for events that may likely occur in the future. Risk Management Solutions has begun to realize that this no longer an adequate practice, largely due to climate change, but also because of various factors that exist around the world that are difficult to quantify by basing their future outcome on what happened in the past.
It is no longer possible for insurers to estimate the impact of future disasters on past events
When it comes to climate change, it is impossible to look into the past and quantify the impact of such a phenomenon. While climate change is a natural cycle for the world, this cycle can take place over thousands of years and the changes can be so modest that they escape notice for centuries. Insurers do not have the information needed to base risk models off of past climatic events, and this is forcing them to adopt new practices when it comes to addressing the issues surrounding climate change.
In recent years, heavy rainfall, uncommonly frequent storms, and severe flooding have highlighted the problems that insurers face. In many cases, insurers have been unprepared to deal with the damage caused by the increasing frequency of these events. In 2012, Hurricane Sandy tested the insurance industry, causing some $68 billion in damage to the eastern United States. To this day, many of those affected by the unusually powerful storm are still trying to recover, while insurance companies continue to deal with the financial, political, and regulatory fallout that has been sparked by the disaster.
How insurers move ahead with climate change in mind is difficult to say. Very few insurers have come out as advocates for the mitigation of climate change, with most taking a neutral stance in order to avoid whatever negative implications could be associated with acknowledging climate change outright. The issue is severely politicized and has managed to divide many people who often argue whether or not the problem is very real or very much a fantasy.