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Conclusion: Insurance in the Anthropocene
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Sociology
Criminology

Insurance and climate change

Profile image of Cameron HolleyCameron Holley

2020, Routledge International Handbook of Green Criminology

https://doi.org/10.4324/9781315207094-25
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Abstract

Louise du Toit '… risk will no longer grow as a linear function … Instead risks will multiply exponentially and with gathering speed … As far as the insurance industry is concerned, this development calls for immediate action' (Kaufmann 1990, no page number). 'Underwriting climate destroying coal projects [in] this day and age exposes the climate rhetoric of most major insurance companies as hypocritical' (Bosshard 2017, 7).

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Deon Nel

Business and Climate Change Governance

This! chapter! explores! the! challenges! currently! being! faced! by! the! global!insurance!industry,!linked!to!climate!change!and!the!changing! socioGecological!landscapes!within!which!the!industry!is!now!operating.!!It!draws!on!a!case! study,! undertaken! by! a! team! of! natural! and! social! scientists! and! in! partnership! with! a! leading! South! African! insurer,! already! finding! itself! impacted! by! a! rising! rate! of! insured! losses!it!associates!with!environmental!change.!As!such,!the!insurer!is!becoming!increasingly! aware!that!the!industry!needs!to!proactively!innovate!new!solutions!to!address!the!complex! challenges!faced.!! In! this! light,! the! study! explores! the! relationship! between! ecological! and! social! drivers! of! environmental! catastrophes! (referred! to! as! climate' risks)! and! the! impact! these! are! having! on! the! insurance! industry.! ! The! study! highlights! how! social! influences! on! the! physical! landscape! (such! as! landGuse! management),! and! referred! to! as! proximate' drivers! of! risk,! often!have!equal,!if!not!greater,!and!certainly!more!direct,!impact!on!the!size!and!scale!of! climate!risks!than!ecological!drivers!(such!as!rainfall)!alone.!! In! the! past,! insurers! have! focused! on! their! ability! to! assess,! and! thereby! manage! risk! exposure! through! actuarial! analysis; This!suggests!actuarial!analysis!may!no!longer!be!as!effective!a!tool!for!risk!management!as! it! once! was,! raising! fundamental! questions! as! to! how! insurance! will! continue! to! manage! future! risk! exposure! and! what! needs! to! be! done! to! move! it! away! from! its! traditional! approach!to!risk!management!(i.e.!improving!risk!management!via!the!client).!!! In! this! light,! the! chapter! reflects! on! what! is! behind! the! efforts! by! The! Santam! Group! (Santam)!to!try!and!find!ways!of!responding!to!the!assessment!and!management!of!risk!and,! in! so! doing,! help! develop! a! new! strategy! for! dealing! with! climate! risk.! ! In! keeping! with! Hamann! et! al.! (this! volume),! to! understand! the! challenges! faced! by! insurance,! one! must! analyse! the! coGevolution! of! organisations,! and! their! institutional! surroundings,! to! help! identify! why! companies! respond! to! the! need! for! change! often! by! focusing! on! improving! their!existing!technologies!first!before!developing!new!ones.!! Here! we! draw! on! the! international! insurance! and! business! literature,! referred! to! in! this! volume,!which!suggests!that!part!of!the!reason!is!that!innovation!outside!of!the!traditional! ways!of!doing,!is!challenging!for!any!industry,!noGlessGso!than!in!this!instance,!that!requires! insurance! to! develop! such! a! novel! paradigm! for! risk! management.! ! Other! constraints,! including! preGexisting! business! mentalities,! the! shortGterm! nature! of! the! industry,! competition! pressures! and,! unavoidably,! the! regulatory! environment! further! compound! their!challenges.!! ! ! ! Nonetheless,! acknowledging! and! addressing! these! obstacles! will! be! crucial!if!the!industry!is!to!remain!resilient!to!the!impacts!of!future! climate!risk,!and!is!a!key!motivation!behind!Santam's!efforts!in!this!collaboration.!!! What!follows!is!an!overview!of!the!relationship!between!the!insurance!industry!and!climate! risk,! including! an! overview! of! the! 'Eden! Study'.! This! is! followed! by! an! analysis! of! the! international!literature!on!what!challenges!the!industry!should!expect!to!face!as!it!seeks!to! change!its!approach!to!risk!assessment!and!risk!management.!! ! Societies!risk!manager:!in!a!climate!of!change! Since! antiquity! insurance! has! grown! to! become! 'society's! primary! financial! risk! manager'! (Hecht,! 2008(Hecht,! :1959)),!with!early!examples!dating!back!to!3000!BC!when!Chinese!merchants! would!spread!their!cargo!across!ships!so!as!to!reduce!the!risk!of!outright!loss.!The!practice! was!so!popular,!and!evolved!so!rapidly,!that!by!the!middle!of!the!17th!Century,!insurance! had!formalised!and!was!flourishing!across!Europe,!then!the!epicentre!of!global!trade.! Today!insurance!represents!7%!of!global!GDP,!with!commercial!insurers!alone!turning!over! US$4.6! trillion! in! annual! premiums! (The! Geneva! Association,! 2011).! This! makes! insurance! the! largest! industry! in! the! world;! bigger! even! than! the! defense,! oil,! electricity! generation! and! pharmaceutical! industries! (Phelan! et! al.,! 2011).! With! financial! investments! valued! at! US$24.6! trillion! insurance! is! also! the! third! largest! institutional! investor,! following! pension! funds!(US$29.9!trillion)!and!mutual!funds!(US$24.7!trillion)!(Maslakovic,!2011).!! Insurance!is!regarded!as!society's!risk!manager!as!its!core!function!is!to!provide!the!financial! mechanisms! that! help! transfer! the! risk! of! loss! to! others! better! equipped! at! managing! it!

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A Global Review of Insurance Industry Responses to Climate Change
kaze momo gerard

A vanguard of insurers is adapting its business model to the realities of climate change. In many ways, insurers are still catching up both to mainstream science and to their customers, which, in response to climate change and energy volatility, are increasingly changing the way they construct buildings, transport people and goods, design products and produce energy. Customers, as well as regulators and shareholders, are eager to see insurers provide more products and services that respond to the ''greening'' of the global economy, expand their efforts to improve disaster resilience and otherwise be proactive about the climate change threat. Insurers are increasingly recognising the issue as one of ''enterprise risk management'' (ERM), one cutting across the domains of underwriting, asset management and corporate governance. Their responses are becoming correspondingly sophisticated. Based on a review of more than 300 source documents, plus a direct survey of insurance companies, we have identified 643 specific activities from 244 insurance entities from 29 countries, representing a 50 per cent year-over-year increase in activity. These entities collectively represent $1.2 trillion in annual premiums and $13 trillion in assets, while employing 2.2 million people. In addition to activities on the part of 189 insurers, eight reinsurers, 20 intermediaries and 27 insurance organisations, we identified 34 non-insurance entities that have collaborated in these efforts. Challenges and opportunities include bringing promising products and services to scale, continuing to identify and fill market and coverage gaps and identifying and confirming the veracity of green improvements. There is also need for convergence between sustainability and disaster resilience, greater engagement by insurers in adaptation to unavoidable climate changes and to clarify the role that regulators will play in moving the market. It has not yet been demonstrated how some insurance lines might respond to climate change and a number of market segments have not yet been served with a single green insurance product or service. As insurer activities obtain more prominence, they also will be subject to more scrutiny and expectations that they are not simply greenwashing.

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Risk and Precautionary Approaches to Climate Change: Conceptual and Empirical Lessons from the Insurance Industry
Patrick Welle

Journal of Management Policy and Practice, 2012

The concept of option value provides insight in weighing the countervailing risks of doing "Too Much Too Soon" or "Too Little Too Late" in addressing climate change. Option value represents profit potential to the insurance industry when it is positive, which occurs if people's willingness to pay exceeds expected actuarial losses. Climate change could increase both the mean and the variability of actuarial losses. This paper reviews literature relating climate change to the insurance industry and summarizes empirical estimates of damage payments by private insurers. Public data on long-term trends in weatherrelated disaster and emergency relief payments are cited.

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THE SHOCKING TRUTH ABOUT INSURANCE RATES AND CLIMATE CHANGE
Prof. Dr. MBONIGABA Celestin

2022

The research examines the impact of climate change on insurance rates, aiming to quantify the correlation between extreme weather events and premium trends. Using a mixed-methods approach, the study analyzed insurance data from 2010 to 2022 and conducted expert interviews to gather insights on actuarial modeling challenges. Findings indicate a strong positive correlation (r = 0.85) between climate indicators and rising premiums, with regression analysis (β = 0.75) reinforcing the predictive link between climate risks and rate increases. Current actuarial models under predict necessary rate adjustments, as evidenced by a 12% RMSE, necessitating model updates to incorporate dynamic climate factors. Regions implementing regulatory reforms and technology adoption saw more stable premiums, with a 5% reduction in annual rate volatility. Recommendations include enhancing actuarial models, supporting climate resilience measures, and fostering regulatory and technological adaptations to stabilize insurance markets amid climate impacts.

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Bookkeepers of catastrophes: The overlooked role of reinsurers in climate change debates
Sebastian Kohl

Global Environmental Change, 2024

Global warming had long been discussed as an abstract matter of physics and chemistry. Only in the 1990s did the more tangible costs caused by natural catastrophes come into focus. The key corporate actors to advance this damage and risk perspective on climate change and corroborate it with datareinsurance companieshave largely been overlooked in the literature. Drawing on expert interviews, hitherto confidential archival sources and text analysis, this paper traces how the two largest reinsurers have made sense of climate change and become important voices in creating awareness of man-made climate change. It underscores their unique role as both producers and translators of climate change knowledge and highlights the thorny and even subjective nature of interpreting climate-related data. This sheds new light on the history of climate change knowledge and raises important questions about the role of business actors.

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