Climate change – what are the crucial issues for insurance brokers? | Insurance Business America
You can’t keep climate change out of the headlines these days. From Extinction Rebellion’s protests to Greta Thunberg becoming a household name, it seems an issue that has been a talking point for more than 30 years has suddenly hit fever pitch. Now the question is, what should the insurance industry be doing about it?
Earlier this week, Christopher Croft, CEO of the London and International Insurance Brokers’ Association, offered his views on the issue in an exclusive column – and now Insurance Business has reached out to Susan Fallon (pictured), global head of property in commercial insurance at Zurich, to get the latest on where the industry stands on this global movement.
“To take you back in history, if we look at climate change it came up about 30 years ago as a topic in the general media,” she told Insurance Business. “Industry and individuals were always told about the risk but there was a lot of scepticism as to what the risk would be and what the impact would be. To bring you forward, as we approach 2020 – now we ask the same question about 2050 but we can actually tell you what’s happened over the last 30 years with scientific and academic evidence.
“We have learned where people live. More of the population are now living along the coastline, more in mega cities, we have seen an increase in global temperatures, ice caps melting, sea levels rising. What we are also seeing is the impact on the environment – natural catastrophes and an increase in wildfires and flooding and rainfall – storms with hail, windstorm risk, etc., depending on the part of the world you live in. When you start looking at some of these impacts in terms of weather events and the data behind some of those events there are advantages – in Hurricane Harvey, in Texas, for example, there was a group of people who created some simulations and found that that climate change warnings could have contributed to the precipitation that fell there. So, we see events and statistics backing up the impacts.
“We should care – and not just us as one insurer – we have to face up to this as a society collective. Some of the events we have seen in more recent times, the probability is of those increasing and continuing in intensity - we can see more loss of life, more loss of property and a larger economic loss globally. Not every class of loss is insured – there is a protection gap between insurance and non-insurance and there is the potential for that to widen.”
From a broker perspective, Fallon explained, it’s about client awareness – ensuring they know how their business model can be impacted by these developments.
“It varies by industry as to some of the focus,” she said. “I think that of some of the climate change and risk services that provide an offer to customers, the natural hazard ones in particular can help inform customers on where their assets are located. Looking at future models can help you see that there is a probability of flooding and can make a difference to how you want to invest in those assets.
“They may want to change the products they are offering – changing plastic to natural fibre, for example. Then there is a customer who could be impacted by weather related events.
“There are sectors too that will have to adapt further in terms of the products they are producing. You will see a lot more movement in the energy sector, for example – globally there is a movement on where energy is coming from with alternative methods of energy to fossil fuels and that will only grow over the next 10-20 years.”
Risk mitigation has, similarly become a key issue for brokers to raise. Zurich, for example, has recently reached a strategic agreement with riskmethods – a supplier it believes has the ability to work with customers and map their supply chain while looking at a number of risk factors including everything from geopolitical, to economic to natural catastrophes. It provides real time monitoring of everything from media reports to risk data to help clients make better decisions on a risk occurring and dealing with unplanned costs. Now, Fallon hopes brokers will also start preparing clients to be more resilient to loss.
“At first we look at establishing the key risks and what their exposure is to that loss,” she said. “What we have developed internally are risk tools that allow us to look at perils and types of loss on those buildings and then we work with risk engineers and with each customer to look at mitigating those events.
“If a client is in a hail zone, we’ll talk about different structures we can look at to mitigate damage to their roof; if it’s a windstorm area, it’s about making the building more resilient in terms of wind protection. So, it’s dependent on the risk characteristics – then it’s about mitigating those risks and putting out a series of documents that brokers can share – from what to do in a hurricane event, to a flood event, etc. We put out key points that brokers can easily bring up with their customers about those topics.”
Ultimately, Fallon believes that the media elevating the issue is massively beneficial for brokers as it gives them opportunities to show history and real-life examples that can help get the key messages across.
“If you’re talking to someone with a small business, they might think ‘this has nothing to do with me’ – but the mid-market has exposures and risks they may not have been able to identify or deal with before.
“Talk about sustainability with the client. For that small business it’s about being more personal and the relationship – how they supply, where their products come from.
“It’s also important to talk about the sustainability of the offering of the insurance product. Past losses have had a strain on the commercial sector of insurance and particularly the property sector. So, we are going through a period of readjustment and we need to be sustainable ourselves. We need to ensure we have an adequate level of pricing for the risk we have taken on - there is some way to go to make sure there is sustainability in the long term.”