The industry as a whole has taken little action to incorporate climate change risks into underwriting policies.
Accenture states there are three reasons for this.
"The first reason that insurers have been collectively slow to incorporate climate change into underwriting is that climate change models are often incompatible with insurance risk models. As Bob Hartwig, president of the Insurance Information Institute, put it, “It’s not presently possible, give the current state of climate science, to take the output of climate-change models and apply them directly to insurance pricing.”
The second reason is that most P&C insurance policies have a term of one year. This encourages insurers and their customers to focus more on short-term than long-term risk. Many of the risks associated with climate change are long-term.
Third, some in the industry see climate change as a long-term competitive opportunity."
WHY UNDERWRITING IGNORES CLIMATE CHANGE- Accenture March 2017
The accelerating rate of change and pressure on combined ratios is changing that. Insurance and reinsurance companies are paying particular attention, because these calculations help them reassess risk levels.
For instance, information about how much more likely an event is today than it was 50 or 100 years ago can assist decisions about building and adapting infrastructure. If what were thought of as once-in-a-millennium heatwaves now come once a century and will soon become so frequent as to be normal, then public-health systems need to be designed to cope with an influx of people suffering from heat stress. Likewise, if big floods are more frequent, water-handling systems need to be expanded and flood defences raised. Insurance and reinsurance companies are paying particular attention, because these calculations help them reassess risk levels.
unknownx500
