As climate change worsens and extreme weather events hit Australia more frequently and severely, businesses need to undertake a fundamental shift, according to Zurich Australia and New Zealand chair Geoff Summerhayes.
In a recent statement, Summerhayes highlighted a report Zurich co-authored for the University of Cambridge Institute for Sustainable Leadership that proposed a step change in how risk is shared by insurers and others in a “risk system.”
The report identified three ways in which climate change risk is commonly shared:
“What we are increasingly seeing in the climate change era is the migration of risk – and, therefore, losses – from the first of these (insurers) to the second and, most worryingly, third groups. In the Northern Rivers floods in NSW, insurers paid claims of around $5b – a figure that is highly regulated, fully disclosed, and easy to track and analyse. It’s estimated that the losses for government, private citizens, and businesses were three times greater at $15b – an amount that is not only much larger but also largely unreported, little understood, and utterly opaque,” Summerhayes said. “We are seeing, in real time, a transfer of risk back onto businesses and individuals, with governments as a safety net. In which case, the costs are passed back to businesses and individuals anyway via the tax system.
“It is a truth that company directors and business leaders cannot afford to ignore. As climate change impacts worsen, businesses and individuals who are highly exposed will face ongoing escalating premiums or even have coverage withdrawn. In some cases, they may find themselves effectively uninsurable. If you operate in a sector or location that is particularly exposed – or rely on commodities or investments that are – this could easily be your future. The good news is that there are things you can do.”
Summerhayes said real risk sharing starts with understanding and accepting that increasing resilience is necessary for those playing significant roles in our economy and society.
“Climate change impacts all aspects of society and all parts of our economy. That means we need a far more holistic approach to dealing with the risks it throws up, one that not only acknowledges the interconnectedness of businesses, governments, citizens, and insurers but leverages it to become a strength,” he said.
The Zurich report suggested more open sharing of data and information with businesses. Moreover:
“The message for company directors should be clear and urgent. Not everybody will emerge unscathed – or perhaps emerge at all – from this defining decade. However, those who think beyond that time frame and act and plan accordingly can not only survive but also prosper in the emerging low-carbon economy,” Summerhayes said.