how the industry is changing its coverage due to climate change

  • 15

They may not be the most captivating or uplifting reads in the world, but reports on weather phenomena and catastrophes such as those produced by the IPCC, the Intergovernmental Panel on Climate Change, have their audience. There are the experts, there are the journalists, the politicians… and there are also, to a large extent, the insurance companies. Normal. As the extraordinary becomes ordinary and the exceptional becomes the norm, their own business models are forced to adapt to the new scenario. It sounds weird, but it makes sense.

And in Spain we already have an example.

What is a “normal episode”? Here’s the million dollar question. And that is one of the most significant changes registered by the sector in, at least, part of Spain. this same week the newspaper I raised published that the insurance companies of the Valencian Community have begun to include in their policies clauses not to cover damages due to meteorological phenomena that until not so long ago were considered abnormal and unforeseen and now they are not so much.

An example: if until now the insurance covered damage if the rain exceeded 40 liters per square meter (l/m2), now it is specified that this volume of water must be concentrated in a single hour. Another change that the newspaper points out is related to the wind: from omitting its threshold in storms, companies have gone on to specify it, clarifying that it must be above 90 km/h.

“Neither unexpected nor accidental”. That is the main argument of the sector, that phenomena that until now supposed cases spaced out in time are beginning to occur with a frequency that forces us to rethink the “rules of the game”. “These episodes are no longer unforeseen or accidental. What this new clause comes to say is that before these heavy rains happened every ‘X’ years, not all, and now they are repeated several times every year. Being already ‘ normal’ or ‘foreseen’, the insurance is no longer going to take charge because they are no longer extraordinary or unforeseen episodes”, explains José Vicente Grauof the Board of the Association of Professional Insurance Mediators of Vàlencia.

Beyond the theory or the figures, the change directly affects how coverage against DANA or cold drop is proposed, for example, episodes that usually leave a balance of millions of euros in compensation for the sector. Just a few days ago, for example, Efe published that the Insurance Compensation Consortium will allocate between 35 and 38 million to compensate insurers for the damage caused by the rains last week in Valencia, Castellón and Alicante.

A concern that has been in the sector for some time. There are not many news that specify specific changes in the sector, but there are those that warn of how exposed it is to the effects of climate change. The report Insurance 2025 and beyondpublished by PWC this summer, concluded that by 2040 the risks associated with climate change could generate premiums for the insurance industry worth $183 billion worldwide.

“Most of this amount would correspond to insurance related to the protection of homes and properties against different natural catastrophes such as floods, earthquakes and extreme weather events, such as storms or fires, among others,” precise report. He is not the only one to speak in this sense. Arpem either mapfre They have released similar notices.

A challenge for companies. In mid-2021, Mapfre published a study that clearly exposes the situation. “Torrential rains, droughts, hurricanes or fires are natural events whose frequency of occurrence will increase due to global warming. These events have serious social, environmental and economic consequences at the local level. In these situations, insurance companies play a key role for the reconstruction of the affected areas”, reasons the report, before ruling: “Given the multiplication of extreme events, expected as a consequence of climate change, the resilience of the insurance sector could be affected”.

A new key factor in investments. Conclusions slipped by the Valencian organization or Mapfre give an idea of ​​how present the reflection is in the sector. That it is on the table today does not mean in any case that it is something new. A year ago INESE was already aiming how a third of insurers’ investments are exposed to climate change, according to calculations by IAIS, the International Association of Insurance Supervisors. On the same dates here, in Spain, the employers, Unespa, asked the government that the Compensation Consortium assumes more damages. His request came after having paid more than 400 million for atmospheric phenomena.

Climate change is measured in euros. That is the big key. Although the main impact of climate change is measured in social and, of course, environmental terms, it also leaves a clear economic reading, in euros or hard-hitting dollars. And on this edge, insurers play a fundamental role. Not long ago, the consultancy Aon prepared a report in which it puts the economic thermometer on the natural disasters registered in the world throughout 2021.

What is your conclusion? The cost derived from meteorological phenomena amounted to 329,000 million dollarsa figure that says both raw and when put in context: it makes 2021 the third year —among those registered— with a greater volume of computed losses.

Cover image: Ramon Duran (Flickr)

They may not be the most captivating or uplifting reads in the world, but reports on weather phenomena and catastrophes…

They may not be the most captivating or uplifting reads in the world, but reports on weather phenomena and catastrophes…

Leave a Reply

Your email address will not be published.