Insurers' Growing Role in Tackling Climate Change: A Financial Imperative

The Financial Impact of Climate Change on Insurers

Treasury Secretary Janet Yellen's pledge to tackle climate change and her warning about the economic consequences of inaction highlight that climate is no longer just an ecological and humanitarian issue – real money is at stake. As long as climate was seen as a pet project of academics and celebrity activists, driving behavioral change, especially among industries with billions invested in carbon-intensive technologies and processes, was going to be challenging. However, the tide is turning, and no industry is better positioned than insurance to help steer the course. Insurers have had a financial stake in climate-related risks for decades.

Historical Data and Future Trends

Global insured weather-related property losses have outpaced inflation by about 7 percent since 1950. Of the $1.7 trillion in global insured property loss reported since 1990, a third is from tropical cyclones, according to Aon data. Nine of the 10 costliest hurricanes in U.S. history have occurred since 2004, and 2017, 2018, and 2019 represent the largest back-to-back-to-back insured property loss years in U.S. history. Determining how much such losses are driven by climate versus other factors is complicated, and that’s part of the point.

Insurers Leading the Way

Understanding the complexities of weather, climate, demographics, and other factors that contribute to loss trends requires data, analytical tools, and sophisticated modeling capabilities. Insurers invest heavily in these and other resources to be able to assess and price risk accurately. As a result, they’re uniquely well positioned to inform the conversation, drive action, and present solutions. And they’re leading by example. Chubb Chairman and CEO Evan G. Greenberg is among the industry leaders who has been on the forefront of communicating about climate risk. Swiss Re and Zurich Insurance Group have also announced ambitious carbon reduction targets and initiatives to help businesses better prepare for current and future risks associated with climate.

In conclusion, the insurance industry's growing role in tackling climate change is not just a moral imperative but a financial one. For readers, it's crucial to stay informed about these developments and consider how they might impact your own financial planning and investments. Engaging with companies that are proactive about climate risk can be a wise financial decision.