Insurers are already well-aware of the effect climate change is having on their business. Weather-related risks are in constant flux, and markets for new specialty products are clearly emerging.
But insurers may be missing out on an opportunity to play a leading role in the national debate on climate change—and to even perhaps help shape the way the country responds to the reality of more extreme weather.
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Those are among the views put forth by the Deloitte Center for Financial Services in a new report entitled “2015 Property and Casualty Insurance Outlook: Focusing on the Big Picture.”
The report addresses several industry trends—including regulatory challenges, capital management and what it terms “information fluency.” But it also highlights climate change as a key issue for insurers in 2015. And it suggests that, while insurers may be doing quite a bit from an actuarial perspective to better quantify changing risks, they may want to step up their game in 2015.
Sam Friedman, insurance research leader at Deloitte, likens the current situation with climate change to previous situations with building codes and auto safety. “In those cases, the insurance industry showed that it could be at the forefront of risk management by promoting stronger building codes and more stringent requirements for vehicle safety,” he says. “The question is whether insurers are ready to play the same role now when it comes to climate change.”
One factor that Friedman suggests may be holding insurers back from stronger advocacy is the polarized political nature of the national debate on climate change—which could give insurers the sense that taking a position on climate change is tantamount to endorsing a political party.
But Friedman contends that by basing their positions on empirical data and credible risk modelling, they can avoid political overtones and contribute to more intelligent risk mitigation that will benefit society as a whole, even as it benefits their loss ratios.
“By crafting risk management strategies that take into account climate-related factors such as carbon emissions and susceptibility to drought, insurers can help drive agendas from symptoms to sources,” says Friedman. “They can also start demonstrating to regulators and ratings agencies that the industry is assuming leadership of the issue—rather than dragging its feet and needing to be led.”
