The world has been experiencing various signs of climate change, yet many people fail to consider the reality of this environmental phenomenon. However, Deloitte’s 2019 Insurance Outlook foresees climate change as a key trend in maintaining the sustainability of the industry. According to Deloitte, there is a push towards considering this environmental issue in formulating risk management strategies. In fact, some regulators advocate for the inclusion of this phenomenon in the Risk and Solvency Assessment of the National Association of Insurance Commissioners (NAIC).
The Impact on Insurance
Andrew J. Hoffman of the University of Michigan and The Conversation reports on The Huffington Post that coverage costs have been rising due to environmental risks. This is because of the economic impact the U.S. suffered due to natural disasters with insurance companies absorbing around thrice higher than what they usually cover. Because of this, more and more insurers are incorporating these issues into their strategies. According to Hoffman, 38% of insurers in 2018 have included climate change in their policies as compared to the measly 12% in 2012.
Deloitte used the Bank of England’s (BoE) 2016 study to look at the effects this phenomenon has on the central bank. According to the study, any natural disaster linked to the global and regional climates and climate change can result in losses for banks and insurers alike.
Insurance Industry in the U.K.
In light of this, reports by The Independent show that the BoE has also urged banks and insurers to consider this environmental issue as a key factor in creating policies. In an interview, Financial Conduct Authority chief executive Andrew Bailey states that this issue has led to global legal frameworks adapting greener finance products.
Aside from rising costs and potential losses for insurance companies, climate change has urged insurers to cease coverage for fossil fuels known to contribute to this phenomenon. Some companies are also investing in eco-friendly ventures. Perhaps with changes in global climate directly affecting financial industries, more people and insurers will recognize the seriousness of this environmental issue and its causes.
