Can you insure against climate change?

Summary

Climate change is causing more frequent and severe weather events, leading to increased insurance claims and economic costs. Traditional insurance models are outdated, failing to predict these events accurately. As premiums rise, many are left uninsured, especially in disaster-prone areas. Innovative solutions like parametric insurance are emerging, offering immediate payouts based on specific triggers. However, insurers alone cannot combat climate change; broader solutions are needed, including discounts for preventative measures and potential financing for infrastructure projects.

Takeaways

• ⚠️ Extreme weather events are increasing in frequency and intensity due to climate change.
• 🌧️ Hurricane Florence exemplifies how storms can produce significantly more rain in a climate-changed environment.
• 🌪️ The climate emergency is causing both human suffering and significant economic costs.
• 💵 Insurers are facing challenges as they try to cope with the escalating costs of extreme weather events.
• 📈 Insurance payouts reached a record high of $144 billion in 2017 due to severe weather-related disasters.
• 📊 The number of costly natural disasters has risen from about five per year to an average of 15 since 2016.
• 📊 Outdated models used by insurers do not accurately predict the new climate reality, leading to financial strain.
• 📈 Insurance premiums have risen significantly in the last quarter, with property insurance in America increasing by 10%.
• 🏠 Many people are underinsured or uninsured, with half of last year's losses from natural disasters being uninsured.
• 🌐 Parametric insurance offers a novel solution by paying out based on specific environmental parameters, reducing costs and premiums.
• 🌿 Insurers could play a crucial role in encouraging preventative measures and financing infrastructure projects to limit future losses.

Q & A

What is the current trend in extreme weather events?

Extreme weather events are becoming more frequent, with fire seasons growing longer and more intense.

How does climate change affect the amount of rainfall in storms like Hurricane Florence?

Climate change could potentially cause storms like Hurricane Florence to produce 50% more rain than they would in a non-climate change environment.

What are the implications of climate change on human suffering and economic costs?

Climate change is causing untold human suffering and ever-growing economic costs due to extreme weather events.

How has the frequency of costly natural disasters changed between 1980 and 2015 in the United States?

Between 1980 and 2015, there were about five events per year costing more than $1bn in damage in the United States. Since 2016, this has increased to an average of 15 such events per year.

What challenges does the insurance industry face due to climate change?

The insurance industry is uniquely exposed due to having to pay out large sums of money at once and relying on obsolete information and models that do not take climate change into account.

How does the outdated data used by insurers affect their ability to predict and manage climate-related losses?

Insurers' models are based on 30 to 40 years of data, assuming a stable environment, which no longer exists due to climate change, making it difficult for them to predict and manage losses accurately.

What has been the impact of climate change on insurance premiums?

Due to climate change, property insurance premiums in America rose by 10% in the last quarter, and in Australia and New Zealand, they rose by about 18%.

Why might insurance premiums become unaffordable in the future?

Insurance premiums may become unaffordable as disasters regularly happen in places where people can least afford to pay high premiums.

What percentage of last year's losses from natural disasters were uninsured?

Half of last year's losses from natural disasters were uninsured.

What is parametric insurance and how does it work?

Parametric insurance is a type of insurance where payouts are triggered when a specific parameter, such as rainfall or temperature, passes an agreed threshold. This can help insurance companies cut costs and reduce premiums for consumers.

What role can insurers play in mitigating the effects of climate change?

Insurers can help design solutions or take measures that will limit losses, such as offering financing for flood defenses or discounts for homeowners who install protective measures.

Why can't insurers save us from the effects of climate change?

The world fundamentally cannot be insured against climate change because the scale and impact of climate change are too vast and unpredictable for the insurance industry to fully mitigate.