COVID-19 is an existential threat… but so is the climate crisis
Like so many other people around the world, I've been closely following the daily updates on COVID-19. "Unprecedented" seems to be one of the most common and apt descriptions of the crisis. In almost 30 years in the insurance industry, I certainly haven't seen anything like it. The countless human tragedies caused by this crisis are heart-breaking. The sheer speed at which the virus is spreading around the globe and the scale of the situation are mind-boggling. And what I find even more alarming about this crisis is that it is happening at a time when the world is already showing signs of becoming less resilient.
Indeed, when we put COVID-19 into a broader context, the current uncertainty is just the latest in a string of disruptions that have marked the first two decades of the 21st century. Think of the Great Recession of 2008/2009, ongoing repercussions from the terror attacks of 9/11, heightened geopolitical tensions, large-scale population migrations and, of course, global warming. Taken together, all these factors pose a serious threat to global resilience.
But I'm a fiercely optimistic person and truly believe we can come up with viable solutions if we tackle these risks together and in a resolute fashion. There's one risk, in particular, that permeates our lives just as much as a global pandemic, although its effects are less sudden and perhaps less obvious. It's a risk where collective action by the public and private sectors – and indeed all of us – is needed more urgently than ever and where the insurance industry can play a leading role. I'm referring, of course, to the ongoing climate crisis.
This is an issue especially close to my heart. We owe it to future generations to tackle climate change – and we need to start now. Because whether we're successful will depend on actions we take today, including in our daily lives. Our younger generations have understood this perfectly well. Encouraged by my own teenage daughters, we've begun to eat less meat, purchased an earth heat pump for low-carbon heating and are now considering putting solar panels on our roof. It's a modest start. But I know many other individuals and families are doing similar things, and that growing movement gives me hope that we can tackle the climate emergency if we all act together.
Climate change is indeed everybody's business – and so are its impacts. While the risks of climate change may be felt more gradually than those of a worldwide pandemic, they are no less widespread in geographic scope and are increasingly evident: global temperature records, rising sea levels, longer and more frequent heatwaves, erratic rainfall patterns and more extreme weather events. The devastating bushfires on Australia's east coast at the end of 2019 and the severe flooding across large parts of the UK earlier this year are recent examples of the mounting threat we face.
In its latest natcat sigma publication, Swiss Re Institute looks at the growing accumulation of natural catastrophe risk as a result of economic growth and climate change. According to the report, 2019 has shown us two discernible global trends that are increasingly colliding to create the perfect storm: continued urban development in high-risk areas and the local impact climate change is having around the world.
This clash is particularly visible in what we insurers term "secondary perils," small to mid-sized events that are linked to more extreme weather. They include floods, droughts and wildfires, which are now responsible for the majority of insured natural catastrophe losses. While we can attribute most of these losses to rising exposures due to economic growth and urbanisation – 55% based on our expert analysis – we expect climate change effects to show in rising losses in the future.
All this boils down to one important insight: we're building, living and working in precisely those locations most at risk from climate change and putting more people and assets in harm's way. This is particularly visible in the growing urban centres along the coast, on floodplains and near forested wildland. Despite the stark warning signs, exposed coastal cities such as Miami and New York have made only slow progress towards strengthening their flood resilience. Compare this situation to Rotterdam, which has taken just about every smart measure under the sun to make sure it isn't overwhelmed by the ever-present risk of flood.
Growing risks and opportunities
Clearly, the deeper climate change begins to bite, the higher the insurance losses and the greater the uncertainty. This, in turn, will raise insurability concerns, especially for property lines. But for the insurance industry, climate trends generate both challenges and opportunities. We can find them in at least three key areas:
First, in the transition to a low-carbon future. There's the pressing need to take action to reduce carbon emissions across key sectors, with an ambition to reach net zero by 2050. The insurance industry has a key role to play as a risk taker, helping to drive low carbon innovation. In the construction sector, for example, our professionals say that insurers can provide risk assessment standards and procedures around which new low-carbon construction technologies and materials are reasonable from a risk perspective, and subsequently offer insurance solutions that can encourage their increasing deployment. The move to low-carbon transport especially in the cities, exemplified by e-bikes and e-scooters, will also present new opportunities for more flexible and more digital insurance solutions. In fact, the list of contributions the insurance industry can make are almost endless.
Second, we need to make our communities more climate-resilient. Urban centres where most people now live have to adapt to the unavoidable impacts of climate change. Here, let me again cite the city of Rotterdam as the "model pupil." This city's flood resilience is not only evidenced by its massive storm surge barrier facing the North Sea but also by relatively small-scale measures. For example, the city provides subsidies to home-owners to turn their roofs green – to cover their roofs with a growing medium and foliage in order to reduce peak water discharge following a rain storm and help prevent flooding. Rotterdam has also backed cost-saving initiatives such as underground carparks and children's playgrounds that can double as rainwater reservoirs. In this field as well, insurers can play a big part in developing resilience strategies for urban communities. This contribution includes practical risk knowledge insights or access to risk assessment tools, such as Swiss Re's CatNet®.
And lastly, in using new data and technology to enable forward-looking risk assessments and underwriting. Policy holders, risks, underwriting processes, claims – you name it – insurance is a data business. The way we use data is evolving. What was once a tool to help us record what has been done is now a gateway to understand where it is possible to get a handle on future risks and opportunities. One successful example is in closing the protection gap for property coverage against flooding. Globally, we've been deploying tools to combine flood model rates with external economic data for population growth, home values, and GDP per capita. We then plug that data into our visual analytics and machine learning methods and deliver customised visualisation tools that accurately identify which cities, neighbourhoods or even properties are most exposed to flood risk.
Although the COVID-19 crisis dominates all the headlines, and understandably so, part of our resilience-building effort must be to not lose sight of the other big emergency of our times, namely the climate emergency. As is illustrated in the sigma report , it is essential that we confront this crisis with a sense of urgency. Finding a way out of the impasse will require risk-taking and perseverance. But if we act now with resolve and determination, and if we act together across countries, business sectors and levels of government, we can make our world more resilient and avert the most damaging consequences of climate change.