Navigating Climate Risks: How Insurers Are Leading the Charge

The Unique Role of Insurers in Addressing Climate Risks

The insurance industry is uniquely positioned to provide leadership in the public policy dialogue over climate risks. Our contribution to this conversation is crucial because insurers recognize the growing intensity of threats to the properties insurers financially protect. In 2020, the U.S. witnessed a record hurricane season with 30 named storms; 12 of them made landfall. We also observed the worst wildfire season on record with more than 10 million acres burned—roughly the size of Maryland.

The Financial Impact of Climate Disasters

The U.S.’s auto, home, and business insurers cumulatively saw their catastrophe-caused insured loss payouts more than double to $47.1 billion for the first nine-months of 2020 from $21.5 billion in the same nine-month period a year earlier, Verisk and the American Property Casualty Insurance Association (APCIA) found. The federal government quantified this trend, too. According to the National Oceanic and Atmospheric Administration (NOAA), there were 22 weather and climate disasters in the U.S. in 2020. Damages from these disasters exceeded $1 billion each and totaled approximately $95 billion for all 22 events when including both insured and uninsured losses, NOAA estimated.

Innovative Solutions and Future Challenges

The demand for insurance industry involvement in addressing climate risks is urgent. With a new administration and Congressional majority, climate is a priority issue in Washington, D.C. Industry leaders would be wise to explore pro-actively climate risk solutions for business and society—and not wait for elected officials to prescribe a response. I believe climate risk is a challenge that should be integrated into each insurer’s Enterprise Risk Management (ERM) framework. That means examining climate risk impacts on insurer investments, underwriting and operational priorities—and then managing all dimensions of those findings. One of the biggest challenges we will likely face is rising consumer expectations. We also must remember the political arena often animates public expectations. As an industry, we have at times struggled to produce innovative products and services.

Whether its personal or commercial insurance, our consumers want offerings that are relevant for their individual needs, which today includes being more resilient to climate risk. Everyone in the financial sector faces these challenges but I am confident insurers have the insights and expertise to deliver the innovation required in our changing world.

For readers, it's important to stay informed about the evolving insurance landscape and consider how climate risks might impact your own insurance needs. Engaging with your insurer to understand their strategies for managing climate risks can also provide peace of mind and ensure you're adequately protected.