Climate risk protection gap of $1.7tr creates growth opportunities
A climate risk protection gap of $1.7 trillion caused by extreme weather over the past decade opens up many new opportunities for insurers, says ClimateWise, a global network of 28 insurance industry organisations.
Natural disasters and extreme weather impacting every corner of the world mean 2017 is on track to become one of the most expensive on record.
Hurricane Harvey, which caused $180 billion in losses when it hit Texas in August, was just one of the many events that exposed the growing climate risk protection gap and the urgent need to improve the resilience of cities, according to a Nov. 21 statement. In particular, the devastation highlighted the pressing importance of insurance with only one in five homeowners in Greater Houston having flood insurance, and insured losses amounting to less than $19 billion – or just 10.5 per cent - of the total losses.
In developing countries, insurance penetration is even lower, leaving countries highly vulnerable when floods, droughts or hurricanes strike, as seen in Bangladesh and India.
“Our industry has been shaken by climate perils impacting urban centres and 2017 is on track to become one of the most expensive years on record,” said Maurice Tulloch, chairman of global general insurance at Aviva.
ClimateWise, which is committed to helping insurers and society respond to the risks of climate change, has published The ClimateWise Principles Independent Review 2017, an annual assessment of its members.
“The climate risk protection gap presents insurers with one of our industry’s most profound challenges. The cost of extending sustainable insurance cover is now simply not affordable in many places. A proactive response is required.”
Throughout the past decade, just 30 percent of catastrophic losses were insured, producing a cumulative shortfall of $1.7 trillion, according to ClimateWise member Swiss Re. The majority of this shortfall was borne by government and civil society.
With 50 percent of the world’s populations now living in cities, and 1.5 million people migrating to urban areas every week, improving resilience to climate-related disasters is more important than ever.
“Cities are at the epicentre of the climate risk protection gap crisis, given their concentration of economic activity and vulnerability,” said Tom Herbstein, ClimateWise director.
“The challenge is how to extend insurance cover in a world where climate risk exposure continues to grow.
“While the climate risk protection gap presents a very real challenge for cities, there are also many opportunities for new partnerships and products. Insurers must start proactively exploring where, within their own value chains, and collaboratively across the industry, these opportunities lie.”
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