According to a new insurance industry survey, actuaries ranked climate change as the top risk for 2019, beating out concerns over cyber damages, financial instability, and terrorism.
Actuaries are business professionals who analyze the financial costs of risk and uncertainty. They use mathematics, statistics, and financial theory to assess the risk of potential events, and they help businesses and clients develop policies that minimize the cost of that risk. Actuaries’ work is essential to the insurance and reinsurance industry.
To put their work into context, insurance companies rely on the assessments of actuaries in managing climate risks. This could result in an actuary suggesting using better planning in building in flood-prone areas or building more resilient infrastructure designed to withstand anticipated sea level rise, according to Robert Erhardt, associate professor of statistics at Wake Forest University.
“The survey shows actuaries are engaged and tackling this risk frontier,” Steve Kolk, actuary and climate data scientist, told Grist. “It thrills me to see actuaries join the effort and help us all build a sustainable planet more quickly.”
More on the survey
The survey was the work of the Canadian Institute of Actuaries, Casualty Actuarial Society, and the Society of Actuaries Joint Risk Management Section. The survey was completed in November 2018 and included 267 participants. The survey was primarily North America based (87 percent), with additional responses from Europe, Asia, South America, Africa, Caribbean/Bermuda, and the Middle East.
The full report covering the 12th Survey of Emerging Risks with complete updates and analysis of open-ended questions will be released later in the year.
Of the 267 participants surveyed, fully 22 percent put climate change as the top risk in the insurance industry today. Actually, this was a dramatic change from previous yearly surveys when climate change lagged at the bottom of a list of as many as 23 various risks. Last year, for example, climate change was tagged by only 7 percent of respondents as being a risk.
What is important to note is that this survey aligns with a number of current and future projections of climate change’s impact on the global economy. It is especially noteworthy that climate change and its impacts have made a sizable dent on economic growth, as well as disrupting supply chains and the demand for products.
Climate change is becoming very costly
Swiss Re, the world’s second-largest reinsurance company based out of Switzerland published a new study on April 10, 2019, that offers a lens into the changing trends of the insurance world.
The combined insured natural catastrophe losses for the two year period between 2017-2018 was $219 billion, the highest ever over a two-year period. The company credits urbanization and anthropogenic climate change as being behind the higher price tag.
Ernst Rauch, the chief climatologist for Munich Re, the world’s largest reinsurance company, told The Guardian that the $24 billion in costs from the recent California wildfires could soon be widely felt because premium discussions are already underway with clients holding asset concentrations in vulnerable parts of the state. “If the risk from wildfires, flooding, storms, or hail is increasing, then the only sustainable option we have is to adjust our risk prices accordingly. In the long run, it might become a social issue,” he said after Munich Re published a report into climate change’s impact on wildfires. “Affordability is so critical [because] some people on low and average incomes in some regions will no longer be able to buy insurance.”
Nicolas Jeanmart, the head of personal insurance, general insurance and macroeconomics at Insurance Europe, represents 34 national insurance associations. Jeanmart says there may very well be some unwanted effects to rising premiums.
“The sector is concerned that continuing global increases in temperature could make it increasingly difficult to offer the affordable financial protection that people deserve, and that modern society requires to function properly,” he said. As it stands right now, Munich Re’s insurance cover in hurricane-prone regions like Florida is already higher than in northern Europe,
And premium adjustments are already being put into place in regions around the world facing increased extreme storm systems, brought on by climate change. These regions include parts of Germany, Austria, France, south-west Italy, and the U.S. Midwest.
Paul Fisher, the Bank of England’s former coordinator on climate change, and a fellow at the Cambridge Institute for Sustainability Leadership said: “In general, one can’t prove that a single event is the result of climate change but it is likely to cause more such events of greater severity.”
“It is very interesting if insurers conclude that climate change was a significant contributory factor to the event and will make the insurance companies think carefully about the pricing and availability of similar insurance policies.”
