It's time to take action on climate change
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Climate change and more frequent and severe secondary perils are leaving their undeniable mark on societies around the world. Most recently, at least 242 people have died in European floods since July. Adding to the human tragedy has been the economic cost, with livelihoods and homes washed away or damaged irreparably. Our most recent estimate is that total insured market losses have been approximately USD 12 billion, but the economic cost to the affected countries will be orders of magnitude higher. It's time to take action on climate change, now.
Secondary perils are rising relentlessly
"Primary perils" such as tropical cyclones and earthquakes have the highest loss potential per event and often receive the most attention. However, secondary perils such as hail, sudden storms, flooding, drought, freezes and wildfire account for the majority of insured losses, and they are on the rise. These more localised events are linked by strong evidence to climate change and are increasing in both frequency and intensity.
Last year, 70% of insured global disaster losses were the result of secondary perils, well above the long-term historic average of 50% and against the 10-year average of 65%. Analysis from our latest Property & Casualty (P&C) sigma report shows that climate risks could more than double insured property catastrophe losses in key European markets by 2040.
Unfortunately, natural catastrophe insurance cover has the biggest protection gap today, with 76% of protection needs uninsured globally. Even though the insurance gap for natural disasters is narrowest in Western Europe, it's all relative. In Germany, for instance, only 46% of properties have insurance coverage against floods despite this being a known risk in the country and across Europe1.
Failure to act has a price
The Economics of Climate Change, a report by the Swiss Re Institute, quantifies the economic impact of a warmer environment. It shows that the world economy stands to lose up to 18% of GDP by 2050 if no action is taken on climate change. Economies in Asia will be hardest hit, but Europe stands to lose 10.5% of GDP in a severe scenario, with some of the continent’s most-exposed countries – France and Greece for example – losing up to 13% of their GDP2.
Quantifying the costs of climate change shows the urgent need for all countries to act more quickly and more decisively. While many countries and companies already have net-zero targets in place, progress has been too slow. Climate change mitigation strategies should not be viewed as optional, nor should time and money spent be seen as a cost. It is an existential investment in the future and for the generations that come after us.
Decisive, collective action is needed now
November's COP26 climate conference in Glasgow represents a significant milestone in the push to mitigate climate change. We must avoid a scenario in which future generations look back and say we missed this unique opportunity to set us on the right course.
Transforming our economies to reach net zero by 2050 will be challenging, but nothing in comparison to the challenge of unchecked climate change. Adding just 10% to the USD 6.3 trillion of annual global infrastructure investments to help mitigate climate change risks would limit the average temperature increase to below 2°C. This is just a fraction of the USD23 trillion loss in global GDP that we face annually if climate change and its effects are unmitigated.
Insurers must join forces
As a founding member of the UN-convened Net-Zero Asset Owner Alliance, Swiss Re has committed to transition its entire investment portfolio to net-zero greenhouse gas emissions by 2050. We are also working with partners in the insurance industry on using our underwriting expertise to support decarbonisation through, for example, developing insurance solutions for low-emission technologies and nature-based solutions that absorb emissions.
As a company we aim to achieve net-zero emissions by 2030, focusing first on emission reductions and complementing that with carbon removal, not least through our recently announced partnership with Climeworks, a pioneering venture to permanently remove CO2 from the atmosphere.
As risk managers, insurers and investors, the re/insurance industry is in a key leadership position to drive the deep transformational changes that are needed. However, no single actor, industry or government can solve this challenge alone - collective action will be key. We must also, therefore, be more proactive in collaborating with other stakeholders from the public and private sectors to catalyse the necessary action.
It is clear that climate change is no longer some distant future threat but that it is here today. Nor is Europe immune.
The European floods have been a clear demonstration that taking steps to limit climate change is an urgent necessity now. It's also an investment in our future. Europe’s insurers must lead the way and join forces to help us all face this immediate and growing risk. Only together can we make the world more resilient.
1. Swiss Re sigma 1/2021 - Natural catastrophes in 2020
2. Swiss Re Institute: The economics of climate change risk, 2021