Zurich urges focus on climate risk reduction

Zurich Insurance Group has called for coordinated action against the rising threats posed by extreme weather and natural catastrophes, and an urgent shift in focus toward risk prevention and risk reduction. In a new report, Climate Risks: Strategies for Building Resilience in a More Volatile World, the insurer notes the increasing frequency and intensity of extreme weather events such as hurricanes, floods and wildfires. Over the past decade (2014-2023), extreme weather and natural catastrophes have resulted in approximately $2trn in economic losses, a figure that is on the rise, says Zurich. According to Zurich, there needs to be a new approach that focuses on risk reduction and extending insurance coverage to protect communities and businesses. And it points out that the insurance industry has the expertise to help business and individuals develop effective resilience to extreme weather and natural catastrophes. “Across the industry, there is an array of sophisticated risk management tools, capabilities and solutions that contribute to strengthening climate resilience. These include advanced modelling and risk assessment tools that can accurately predict the likelihood and potential impact of extreme weather events and help customers identify vulnerabilities. While some of these vulnerabilities can be addressed at the individual company or community level, others require a more coordinated, system-level response,” says Zurich. The paper makes three recommendations for policymakers: Invest in risk prevention and reduction: Governments should make formal commitments to strengthen climate resilience through robust strategies and the implementation of building codes and urban planning regulations. Measures include building climate resilience into national planning, establishing national centres of competence, and making more effective use of technology, data analytics and scientific research. Enhance insurance accessibility and affordability through supportive policy frameworks: Governments can raise awareness of extreme weather risks and offer incentives for households and businesses to obtain adequate insurance. This can be achieved by establishing a regulatory environment that sustains market capacity, attracts new entrants, and fosters competition and innovation to broaden coverage options for consumers. Develop public-private risk-sharing solutions to raise finance climate resilience: Innovative solutions such as blended finance and (re)insurance pools can help share resources and distribute risks, improving affordability and preventing the development of “insurance deserts”. Public-private partnerships can enhance insurance accessibility and affordability, especially in higher-risk areas. “The insurance industry is uniquely positioned to help strengthen resilience to physical climate risks,” said Alison Martin, CEO EMEA and bank distribution, Zurich Insurance Group. “However, addressing the escalating costs of extreme weather and natural catastrophes requires collective and immediate action. Our paper provides a roadmap for how governments, insurers and communities can collaborate to meet the growing challenges posed by extreme weather and natural catastrophes.” Zurich warns that while insurance is crucial in protecting households, businesses and governments, helping them recover financially from the effects of natural catastrophes, insurance coverage is not keeping up with growing losses, leading to more underinsured or uninsured households and businesses. “If insured losses continue to grow at this rate, premiums for climate risk coverage will need to increase to reflect the additional risk. This in turn, will affect the level of protection that individuals and businesses are willing and able to purchase, with potential consequences for the overall functioning of the market,” says the paper. To address the compounding challenges posed by rising insured losses and their impact on insurance availability and affordability, there must be an urgent shift in focus toward risk prevention and risk reduction, says Zurich. “These efforts should complement traditional insurance against extreme weather and natural catastrophes. The solutions are not new. Measures such as improved infrastructure, better and stricter land-use planning, and community resilience programmes are already being employed to reduce the risk and severity of damages caused by extreme weather and natural catastrophes. However, a new level of ambition is required to achieve resilience in the face of the evolving natural catastrophe risks we encounter today,” says the insurer. It adds that the insurance industry can provide risk management insights and capabilities to strengthen resilience to physical climate risks. “By de-risking capital flows, the industry can also help unlock the necessary finance to build the infrastructure required to deliver that resilience, enhancing the protection provided by insurance,” Zurich says. The paper concludes: “The escalating costs of extreme weather and natural catastrophes highlight an urgent call to action for governments, municipalities, communities, businesses, and individual households – alongside the insurance industry – to collaboratively build climate resilience.”

Zurich urges focus on climate risk reduction

Extreme weather requires urgent shift in focus toward risk prevention and coordinated action

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