The heat wave and drought episodes that hit Europe recently remind us that there is a climate emergency. While in June the French Institute of Actuaries held its annual conference on the theme “Insurance & Finance: standing in the face of climate change”, Stéphane Pénet, Director of Property and Liability Insurance at the French Federation of Insurance (the French equivalent of Assuralia), discussed the impact of climate change for insurers. Each year, droughts cost French insurers €700-900 million, and it has risen steadily every year for the past 10 years. Climate scientists predict a significant increase over the next 30 years, ranking it first in the list of most increasing risks. Flooding, also linked to climate change, remains the most significant danger, says Stéphane Pénet. Floods now account for 50% of the claims paid by insurers in terms of natural hazards. “In the longer term, the burden of damage caused by natural hazards will almost double in the next 25 years, compared to the last 25 years,” he concluded.
Simultaneously, more and more insurance and reinsurance companies are setting up specialized teams. Munich Re, for example, appointed a “Head of Climate” who manages a unit composed of geologists and climatologists working on natural hazard prediction and analysis. Munich Re stated: “Since the influence of climate change increases over time, the insurance industry must recognize, assess, quantify and include these trends in premium determination models in a timely manner. ». Not long ago, the AXA group renamed AXA Global Parametrics to AXA Climate, emphasizing on the covered risk rather than the technology used to do so. Perhaps in a will to be more identifiable for consumers rather than insurance technicians.
Traditional players of the insurance industry are more cautious and generally follow the recommendations of reinsurers or insurance associations or federations. Wauthier Robyns, spokesman for Assuralia, believes that in the future “companies with the most resources will offer the services of climate analysts in their solutions, while smaller companies will probably stick to following the instructions of large reinsurers, as is the case today”.
Finally, the rating agency Moody’s has also recently announced its decision to take into account the risks associated with ESG factors (Environmental, Social and Governance) in their ratings. In addition, the non-life portfolio’s exposure to insurers’ climate risks is naturally taken into account.
If insurers go green regarding their products, and the risks covered, we are entitled to ask ourselves, if their internal policy is just as green?
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