Insurers must ‘walk the talk’ on climate resiliency, says report

Time for insurance industry to hit the climate-resilience accelerator

Insurers need to step up to the challenges posed by climate change by prioritising strategic initiatives aimed at loss prevention, and promote resilience through their underwriting and investment strategies, according to a new report from Capgemini and Efma.

The report, World Property and Casualty Insurance Report: Walking the Talk: How insurers can lead climate change resiliency, notes that economic losses driven by climate change have increased by 270% in the last three decades, and 75% of policyholders rank climate change among their top concerns. The report says climate change “is hurting the insurance industry”.

But it adds that while natural catastrophes have led to a 3.6x increase in insured losses and 2x increase in non-insured losses during the last 30 years, “it presents an opportunity for insurers to pivot and recalibrate to serve customers in a dynamic landscape”.

Insurers focused on building climate-resilient business models will be better positioned to generate deeper customer trust while boosting their relevance and profitability, says the report.

It highlights what it calls “resilience champions”, which are described in the report as insurers with strong governance, advanced data analysis capabilities, a strong focus on risk prevention and which promote resilience through their underwriting and investment strategies.

However, it says only 8% of insurers surveyed are insurance frontrunners or resilience champions. Such insurers embed climate risk mitigation strategies into their operating and business models. For the rest, the report says that “to ‘walk the talk’ on climate resiliency, insurers must revisit their own business models and balance risk prevention with risk management”.

The report encourages insurers to rethink current risk assessment models, deploy risk prevention at scale, and drive sustainable investment and underwriting strategies, moving beyond exclusions and divestments to create a resilience ecosystem.

“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks. Insurers that prioritise a focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind,” commented Seth Rachlin, global insurance industry leader, Capgemini.

John Berry, CEO of Efma, added: “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognise the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”

The report concludes: “Too few insurers are making headway. The whole industry must hit the climate-resilience accelerator and get moving… Deliberation time has expired.”

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