Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change, warned that the global insurance industry is not prepared for the unprecedented risks associated with climate change.
Figueres had some sobering words for the global insurance industry, speaking at an event held by the French Federation of Insurance Companies (FFSA) ahead of the opening of climate conference COP21 in Paris on Monday.
“With the era of fossil fuel-powered industrialization at an end, the equilibrium that we had enjoyed as a result is also coming to an end and we are now facing new levels of risk and new types of risk,” she said.
“We have increased frequency, severity and scale of impacts because of globalization and the ‘domino effect’ it has. And the insurance industry is not ready for that yet,” Figueres said. “The insurance industry is ready to take on weather impacts, but not ready to take on climate change. They are not the same thing.”
The UN representative went on to say that the industry is at the “bottom of the curve of experience” regarding a risk exposure that is completely unprecedented.
“Can you insure against unbounded climate change? No. All modeling goes beyond what can be explained. You cannot insure against climate change,” she said.
Figueres told the insurance industry that insurance products need to evolve to meet these new types of risk. The UN claims that less than 1% of weather losses in developing countries are covered by insurance.
“This is not only morally irresponsible,” Figueres said, “but from a business imperative it’s a huge opportunity. Developing markets will be mostly affected so you have a role to play.”
In order to help close this gap, last week eight Lloyd’s of London syndicates came together to provide specialist underwriting skills and $400m of natural catastrophe insurance and reinsurance capacity to help developing economies build resilience to climate and weather threats.
Tom Bolt, director of performance management at Lloyd’s said this initiative would help “provide the insurance solutions needed to build resilience to natural hazards and promote risk awareness around the world”.
Figueres said that as very important asset holders – with the global insurance industry holding $25tn, or one third of the entire capital of all institutional investors – there is a huge business imperative, for insurers that are “no longer in the world of pricing risk, but are now in a world of managing unprecedented risk.”
She did have some encouraging words however, saying that given the scope of the challenge set by climate change, “there is no one better able to help the world manage its risks than the insurance and reinsurance industry.”
