Dealing with the permanence of climate change

"This is not something we can ride out"

Dealing with the permanence of climate change


By Tim Grafton

Insurers and their customers have, since the start of 2020, had to endure a pandemic, supply chain crisis, and inflation. All things being equal, the disruption of COVID will continue to diminish on a societal level, supply chains will recover, and inflation subside.

All of these issues have presented significant challenges to insurers; from an accelerated move to remote working, to changes in our workforce, to seeing the cost and resolution times for claims extended.

Climate change, however, presents a wholly different and much more persistent challenge for the sector. One that is far from temporary or transient, and one where constant effort to adapt and modify how we do things, both as insurers and across society as whole, must be maintained.   

Aotearoa New Zealand has seen a steady rise in climate-related claims over the past 10 years. For the five years spanning 2013 to 2017, the average cost of climate claims was $150 million. For 2018 to 2022, $276 million. The last two years; 2021 and 2022, have come in at $324 million and $350 million, respectively.

This steady and sustained rise has had to be built into how our local insurers run their businesses, from premium setting to gearing up their teams to help customers through more frequent and severe extreme weather events.

Our local insurers and their reinsurance partners have, of course, been well aware of the rising tide of climate-driven major events across the globe. There are many well known examples, from Hurricane Ian to the major European floods to the devastating series of floods that have affected Australia in recent years.

Unlike the pandemic and its attendant supply chain and inflation issue, this is not something we can ride out and return to a new normal from. Climate change is a permanent driver of change and its impacts and costs to insurers and reinsurers alike.

Now this message has been delivered to Aotearoa New Zealand in the most brutal, and tragic, way. An atmospheric river delivered unprecedented flooding across Auckland as February commenced, to be followed by a cyclone just two weeks later. Either event in isolation would have been, by far, the largest extreme weather event recorded in Aotearoa. Insurers will be pumping over $1 billion back into communities affected by the first event and likely as much for the cyclone.

The attention of government and communities at all levels is now focused on the immediacy of these events and what it means for individuals, communities, Aotearoa’s cities and towns, to whole provinces and regions, our economy and environment.

People are expecting rapid answers, about whether it is safe for some to return home or to have their homes rebuilt in the same places where they were so recently destroyed. The resilience of infrastructure, from stormwater systems to roads to telecommunications to energy, is an urgent, and multi-billion-dollar, question.

Right now, the focus is understandably on the emergency response to, and recovery from, an acute situation. But as the silt is cleared away and the homes and roads are rebuilt, the underlying issue does not go away. Climate change is a chronic and pernicious problem.

Globally, limiting how bad it gets depends on how well countries can cut greenhouse gas emissions. We can only cope better with the unavoidable shift to more frequent and severe extreme weather events by building resilience into all that we do. That goes for how and where we build our homes, businesses, and infrastructure, as well as for how doing so can support insurers to keep cover both in place and relatively affordable. 

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