Climate resilience requires a longer-term view, says Gallagher’s Bosley

Risk managers need to stop thinking about climate risk as an annual insurance issue and focus on their exposure over the next decade, says Gallagher’s James Bosley.

Key points:
Physical risk moves up the agenda
Carbon credits play a growing role
Firms must plan for changing exposures

Physical climate risk will remain high on the agenda for risk managers over the next few years as organisations grapple with increasingly unpredictable weather patterns, evolving regulation and questions over whether existing insurance and resilience strategies remain fit for purpose.

That is the view of James Bosley, head of climate strategy, carbon insurance and parametric solutions at Gallagher, who believes businesses are focusing more closely on how rapidly their risk profiles could change. 

“I think the focus will be on what is going to change, and how quickly it will change over the next three to five years,” Bosley told AIRMIC Today.

Businesses are becoming more aware of how changing weather patterns could affect their operations, supply chains and insurability. The challenge is understanding how those exposures might evolve over time and whether existing protection will remain adequate.

Alongside physical risks, regulatory pressures are also increasing. Bosley believes many UK firms will still need to align with evolving European standards if they trade internationally.

“I suspect we will see a focus on physical risk in the next year or two,” he said. 

Liquidity and resilience

As climate risks evolve, businesses are also reassessing how they finance losses when disruptive events occur.

Bosley believes one reason parametric insurance has attracted growing attention is its ability to provide rapid access to capital. Unlike traditional indemnity insurance, which might take months to settle a claim, parametric cover pays out when a predefined trigger is met.

“It doesn’t replace traditional insurance,” he said. “What it does is give you working capital in a very short space of time to address the loss and get operational again as quickly as possible.”

Flooding provides a good example. Even where traditional insurance responds, it can take time for funds to arrive.

“What the parametric does is say there is a single, predetermined amount of money. If this event happens, you'll receive that within 30 days and can use that for whatever you need to,” Bosley explained.

“The first thing that really resonates with clients is liquidity. These policies pay within 30 days – no loss adjusting, no deductible,” he said.

That speed can be particularly valuable when businesses need working capital to get back on their feet following an event.

“Clients end up taking loans from banks, then there’s interest on that, and that won’t necessarily be covered by the payout from the traditional programme,” he said. “Getting cash in hand quickly, with no strings attached, is very appealing.”

Looking beyond the next renewal

For Bosley, climate resilience is increasingly becoming a long-term strategic issue rather than an annual insurance discussion.

“There’s no doubt that the climate is changing. Seasons are not as predictable,” he said. “It’s not necessarily that events are always more severe. In many cases it’s the frequency – or infrequency – of events that catches businesses off guard.”

Gallagher’s climate consulting team helps organisations understand how climate-related exposures and insurability could evolve over time. 

“The mindset needs to shift from preparing for this year or next to understanding how risks could change over the next five, 10 or 15.”

“We're helping clients understand how vulnerable they are today, how that might change over the next five, 10 or 15 years, and what that means for their assets,” Bosley said.

That information allows businesses to make decisions about investment, adaptation and risk mitigation before problems emerge.

“Physical resilience will ultimately come down to how you build for a changing climate and how you adapt to one,” he said.

“The mindset needs to shift from preparing for this year or next year to understanding how risks could change over the next five, 10 or 15 years,” he stated.

Transition risk

Bosley also highlighted the growing role of carbon credits in helping organisations meet net zero commitments, particularly in sectors where emissions are difficult to eliminate entirely.

“Carbon credits have emerged as a really effective way to decarbonise where you can’t achieve that yourself,” he said.

Airlines are among the sectors under the greatest pressure. Under CORSIA, the International Civil Aviation Organisation's carbon offsetting scheme, airlines must purchase credits to cover emissions above 85% of their 2019 baseline.

“There’s a genuine financial obligation to meet these, and the credits will be a lot less expensive than fines,” Bosley said.

Bosley expects interest in carbon markets and associated risk solutions to continue growing. “It’s an interesting space and a complicated one,” he said.

Bosley’s message is that climate resilience should not be viewed as a challenge risk managers must tackle alone. “It’s not a burden they have to hold entirely themselves,” he said. “It’s a good time to lean into your supporting partners.”

“Keep being curious. If you have concerns, raise them.”

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