Insurance in a world of climate extremes: what latest science tells us
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Climate change is affecting the severity and frequency of natural catastrophes. Around the world, these risks manifest in different ways: more local flooding, torrential rain, prolonged drought, severe wildfires and other extreme weather events. Urban sprawl and population growth in areas of high exposure, such as along the coast and on the fringes of forestland, are putting many more people and assets in harm’s way. It is therefore vital that we adapt to the mounting risks and make our communities more resilient.
But adaptation alone will not be enough. If unmitigated, climate change could trigger environmental tipping points, which would permanently alter the climate, irreversibly damage our planet and threaten many more livelihoods. This worst case scenario is becoming ever more likely as greenhouse gas emissions continue to reach record levels. To hit a target of a “net-zero” emission economy by mid-century will require drastic changes to land use, energy production, consumption, industrial processes, construction, transport systems and the development of cities.
Today climate change is a manageable risk for re/insurers. However, the rising threat is alarming. In response, the industry needs to improve risk models to better assess climate hazards: the mandate is to ensure development of the capabilities to be able to underwrite natural catastrophe risks in the future. Re/insurers can also play a key role in advancing the transition to a low-carbon economy by providing solutions to manage risks associated with large scale investments in new technology and innovation.