Insurers are under growing pressure to do more than pick up the pieces after disaster strikes. As climate‑fuelled catastrophes become more frequent and severe, industry leaders say the real test now is whether they can help prevent losses before they happen – and they are adamant that they can’t do it alone.
Chris Cornell (pictured right), partner and national sector leader, insurance at KPMG Canada, says he is seeing a shift in mindset among insurers when it comes to climate and societal change.
“From a societal change perspective, we’ve seen this shift from organisations going from recovery to prevention,” he said. “They’re being very focused on prevention,” driven in part by the sheer scale of losses that can be avoided if risks are better understood and managed upfront.
A key enabler of that shift is technology. Cornell points to KPMG’s recent CEO research, which shows strong faith in the role of advanced analytics in climate risk. “Seventy per cent of insurers believe that AI can actually materially improve climate scenario planning and translate that into risk prevention services,” he notes. The same tools that support more sophisticated catastrophe models can also underpin new services and products designed to keep losses from happening in the first place.
In practical terms, that could mean parametric covers that pay out quickly when certain triggers are met, or public‑private partnerships that share the burden of extreme events between governments, insurers and capital markets. For Cornell, the ultimate goal is to close the protection gap – the difference between what people and businesses lose and what their insurance actually covers.
“That scenario planning can lead to improved results for insured people,” he said, “because of better assessment of the potential to reduce rising climate or rising claims costs, capital pressure, those types of things. Organisations are going to have to leverage these technologies in order to support better results for their customers.”
Jonathan Weir (pictured left), a partner at KPMG focused on the insurance sector, describes this evolution as a kind of “positive scope creep” for the industry. Insurers have traditionally been in the business of transferring risk, not rebuilding communities. Prevention has been on the agenda for years, he says, but usually as a secondary theme rather than as a core part of the model.
“Insurers are used to transferring the risk,” Weir said. “But the reality is, if you want to mitigate the risk and not just transfer it all away and pay for it, you have to actually build some resilience into the model somehow – and that means prevention.”
Where prevention works best today, he argues, is at the large commercial end of the market. A global corporation or a major industrial client will often have its own risk management team, capital to invest in mitigation and a premium spend big enough to justify intensive, tailored advice from its insurer. In that context, it makes sense for insurers to use their modelling and assessment capabilities to help shape the client’s decisions about where and how to invest in resilience.
“If you think about a large commercial risk‑managed client that has resources on their side to take actions and has significant risk and therefore significant premium,” Weir said, “there are scenarios where the business case makes sense and the insurer can get involved with helping guide and sort of assist their client on making appropriate decisions based on the risk modelling and the risk assessment the insurer takes.”
The challenge is very different at the retail level. When you scale this down to a personal lines policyholder – a homeowner in a flood‑prone area, for example – the economics of prevention become far harder to balance. The level of bespoke advice and investment that might be feasible for a multinational simply does not translate to a home insurance premium.
“At the personal insurance level, personal homeowner, it becomes very difficult,” Weir acknowledged. “Not to say there aren’t solutions out there, but the modelling, the ROI, is very different.”
That’s where other players need to step in. Weir says some of the most interesting recent conversations he has had about resilience have not been with insurers at all, but with government leaders – one at the federal level in Ottawa and another in a western province.
“In both cases, they were very much interested in resilience,” he recalled. “And the way that they asked their questions was about: how do we build resilience for our communities, for our citizens, for our province, for our country?”
For Cornell, universities and specialist climate centres are another crucial part of the ecosystem. Insurers can support them through sponsorships and research partnerships, but they also benefit from access to “some of the most sophisticated modelling and professionals in the space,” as well as a new generation of students who are passionate about climate risk and sustainability.
“Climate, risk, sustainability – those types of things are what we see from our students that are coming into whether it’s KPMG or other organisations,” he said. “They’re passionate about it, and leveraging that as well is something that insurers can certainly utilise as a benefit to them moving forward.”
The message from both KPMG partners is that expecting insurers to shoulder the burden alone is neither fair nor realistic. Left entirely to market forces, rising climate risk and capital pressure will inevitably push some lines of business and regions toward becoming effectively uninsurable. That’s already visible in parts of the United States, where homeowners in high‑risk states are struggling to find affordable cover.
Canada still has time to avoid that fate. But doing so, Cornell and Weir argue, will require a coordinated effort: insurers using AI and advanced modelling to understand the risk; governments using policy levers to shape behaviour and share extreme losses; universities contributing research and talent; and customers – both corporate and individual – investing in resilience.
