The role of insurers in resilience to climate change

As the potential for climate-related losses accelerates, insurers are continually challenged by the uncertainty and complications caused by extreme weather events. Limited coverage, significant premium increases, and the steady increase in climate-related claims litigation are contributing to this complexity, causing some insurers to reevaluate their risk assessment and management capabilities.

Send “INFUSE: A Proactive Approach to Climate Change Risk Management” webinar, held on September 11, 2024, brought together panelists to discuss how insurers can lead in proactively managing risks related to evolving climate risks. During the discussion, participants shared the need for carriers to embrace data integration and automation to improve risk assessment and ensure adequate coverage.

Derek Lynch, chief underwriting officer at reThought Flood, suggested that insurers use data earlier in the underwriting process to improve policy modeling and accuracy.

“Understanding what the risk is by using this data up front, early and often, is absolutely what we need to do about climate risks,” Lynch said.

Lynch and Mark Varley, founder and CEO of Addresscloud, also explained that modeling and data should be used earlier in the process for properties on an individual building.

“We see that the quality of the data, the availability of geocoding, the ability to be able to match the address and get to the right point is not necessarily at the level we are at in the UK,” Varley said. “In the US, geocoding is a challenge. There’s no real type of single source… being able to do that kind of analysis is a challenge.”

Evaluating data at the individual building level helps underwriters make more accurate and granular loss predictions, as opposed to using an overall risk score and later seeing unexpected losses, according to experts. Lynch noted that after Hurricane Ian, the market saw a significant shift as some carriers pulled coverage from certain areas, removed entire products and increased premium rates.

“You have to do the catastrophe modeling and understand what that individual building looks like … You can be flooded, where your neighbors are fine,” Lynch said. “You do this early in the process – secure the building level so we can move that understanding to a policy, portfolio or program level. Then we understand where our risk or aggregation is, starting from each individual part of the build.”

Carolyn Shreeve, chief underwriting officer of Allied World’s global markets insurance division, explained that there are several ways the insurance industry can move from a traditional capacity provider role to supporting clients with climate change strategies: of risk assessment, with resilience and in the recovery stage after a loss.

“From a risk assessment perspective, most organizations need to map their risk profile and appetite, the relevance of insurance as a mitigation tool, and that’s quite a complex exercise for most companies. The analysis will require input from your own organization. , risk managers, insurance brokers and legal counsel in some cases,” Shreeve said. “But I think insurers have a very important role to play here as well, and I think it’s important for companies to consider not only their own businesses and their resilience to climate change, but also, critically, their supply chain subsidiaries and how they would respond. “

The insurer also plays a significant role in building resilience, according to the panelists. Using high-quality data to conduct risk assessments can inform clients of their own risks.

“Insurers have a very important role to play here as well, in terms of getting clients to implement best practices around managing their assets through extreme weather risks. For most clients, there is an expectation that insurers’ roles will expand beyond that traditional role of just providing insurance, and that’s in part because insurers are uniquely positioned to have data and insights across numerous jurisdictions, areas geographies, industries,” Shreeve said.

“For us, distilling what that information tells you about how certain assets might perform in the face of extreme weather events and providing that back to our clients is not only about adding value for clients, but also potentially improving their risk profiles.” , he said. Shreeve. “Ultimately, this will be a win-win for all parties.”