Insurers are about to take centre stage in debates over sustainability, as the referees of preparedness for climate change.
This is because the economic impacts of global warming will be felt first by households and businesses that cannot buy essential cover.
This process is already underway. September’s floods had the biggest economic impact on businesses that had not been able to obtain cover for flooding. By 2039, the same will be true for households unless the government’s work on flood defences is adequate, because the public-private subsidy for Flood Re will have come to an end.
In the words of a recent report published by the Institute of Actuaries, ‘insurability is not limitless and comes at a price…. Without insurance, investment, finance, business slow to a halt – we will no longer have an economy.’
This gives insurers huge responsibilities – not to enable society to ignore uninsurable risks by pretending that they are insurable, but to send a clear message to businesses, government and the public about what will and will not be viable in the next 50 years.
Only insurers can do this. Climate scientists can predict the physical impacts of climate change, but they cannot weigh up whether households and organisations are able to mitigate the risks in an economically viable way. Similarly, governments can study resilience, but face big political disincentives when it comes to breaking bad news to individual groups in society.
The responsibilities insurers hold around sustainability will mean they must look beyond the year-by-year cycle of insurance pricing and ask about the way risks are evolving over several decades. However, this is a discipline we must master, not only for regulatory reasons, but also to ensure the survival of our sector and the vital activities that we cover.