Climate change is a significant issue for the entire insurance industry, including insurance brokers, according to Robert ‘Rob’ Cooper (pictured), director of Cooper Professional Risks, located in Queensland.
He says the risks and severity of loss from the increased frequency of climate change-related natural disasters is having a profound impact on the way the industry considers writing risks.
“We are coming to a situation where many risks will be considered uninsurable,” Cooper said. “There are many risks where the probability is high, the severity of a loss is very high, and they are becoming more and more frequent. Therefore, they become more and more uninsurable.”
The biggest area that climate change has impacted, Cooper says, is property, particularly around strata and resorts.
“We are now seeing this happen on the north Queensland coast – more and more insurers will decide not to write risks in these areas and this only pushes prices up to unaffordable levels,” he explained.
“It means that the natural instinct is to go under-insured, or not insure at all. Banks and other lenders may stipulate they insure at least their principal security and the insured may opt only for that to satisfy the banks, but they forget that most claims are minor losses and the average clause will likely apply.”
But it’s not just an issue impacting north Queensland’s coast – Cooper says this change in insurance risk has been observed in Florida and the Caribbean, which have both been struck by increasing hurricanes in recent years.
“How many insurers would be keen to write risks in those areas?” he said. “We are also seeing these tropical storms move further down the coast towards the Poles, causing the Artic and the Antarctic to melt much quicker than before.”
Climate change is likely to lead to policy change, with Cooper stating some companies have already created exclusions around sea and storm surge, which are both likely to be broadened, in his view.
“The biggest issue for insurers is not simply increasing the premium, but will they have the capacity from the reinsurance market to write these risks?” he added.
“Will insurers have a capping per risk as they are only able to write a maximum of $1,000,000 per property? Will co-insurance come into play a lot more where two or three different primary insurers will only take a percentage of the risk? As a result, will the cover be reduced?”
All these factors, he says, will add to the amount of work the insurance broker will need to do to find cover for their clients.
“Maybe it will be covered by increased commissions, but if we cannot place the cover in a shrinking market, insurance brokers will not earn anything,” he added.
Cooper adds that he’s now observing indirect pressures being placed on insurers to make ethical decisions, with clients becoming more conscious of where they put their money.
“The concerned insured, along with many shareholders, are wanting more social responsibility from the big corporate insurers, persuading them not to insure risks that directly cause increased emissions,” Cooper explained.
“They are withdrawing support on the very companies contributing directly to climate change, and the businesses that supply them. Clients are changing brokers because of the types of risks they are handling. If you are placing risks on coal mining companies, environmentally conscious clients are wanting to affiliate with brokers who are not.”
This, he says, means insurance brokers will also need to review how they are being remunerated, particularly with the advice being incidental and dependent on the insurer paying them a commission.