KPMG recently posed the following question: “What can insurers do to improve the way they assess and manage the short and longer-term impacts of climate change?”
The World Economic Forum’s Global Risks Perceptions Survey 2018–19 revealed extreme weather events, failure on climate change mitigation and adaptation, and natural disasters as the three most likely risks of significant concern. As a result, climate change is rapidly rising up the public as well as insurance agenda.
KPMG points out that the focus on climate change is not just because natural disaster insurance claims are rising, but also because insurers are increasingly recognising that the mid- to long-term outlook on climate change carries some massive risks.
In South Africa, the findings of the recent Santam Knysna Fire report has also brought home the growing threat that climate change and natural disasters pose for the insurance industry.
According to KPMG there are three channels through which climate risks could crystallise:
- The first is the physical risks from extreme climate events, which include storms, heavy rain, flooding, drought and associated wildfires, and heat waves.
- The second class of risk is the transition risk; basically, the ‘unknowns’ about how the world will evolve towards a low carbon economy in terms of public policy, regulation, actual temperature change, social expectations and technological developments.
- The third class of risk is the liability risk.
However, the good news is that there are a number of initiatives to improve awareness and accelerate response to climate-related risks. At the end it is about understanding, mitigating and managing climate risks. There are a number of actions that insurers could take to improve the way they assess and manage the near and longer-term impacts of climate change. One of these is to drive greater awareness and response to climate change within their own customer base and their markets. It’s about reducing the customer’s vulnerability and increasing their preparedness for extreme climatic events.
Click here to read more as well as access data on the natural disasters of 2018.