Climate change and insurance

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Beyond the traditional assessment of disasters, their causes and effects, the IPCC and WMO reports are telling us that extreme events are poised to increase significantly in number and intensity.

Swiss Re's analysts were of the same opinion, believing that climate change [2] is the number one risk in the long run, which means that global warming is now a matter of global urgency.

For insurers, already struggling with cyber-attacks and with the Covid-19 pandemic, which is costing them dearly in terms of claims, premiums and image, the arrival of a third systemic risk can only double their concern.

In the end, the health crisis could cost reinsurers 50 to 70 billion USD, in addition to the costs of the weather-related claims, the number of which has increased fivefold in fifty years, and the ever-growing cybercrime.

As a result, and for the fourth year in a row, the combined ratio of the main reinsurers very often exceeds 100%. With financial products in decline, the insurance business is bound to either increase rates or reduce benefits. The latter solution is clashing with public opinion and the supervisory authorities who are pushing for more solidarity among insurers.

However, an increase in rates seems inevitable in order to maintain the balance of the current model in place.

While waiting for an in-depth reflection on the role and viability of insurance that brings together the entire profession and the public authorities, one thing for sure is that insurers and reinsurers will once again have to consolidate their shareholders’ equity to face the upcoming rocky times ahead.

Atlas Magazine N°184, October 2021 [1]