Zurich calls for “risk system” implementation
Three ways to share risk
The report identified three ways in which climate change risk is commonly shared:
Via global insurance system: individuals and businesses pay premiums for specified cover when damage and loss occur;
Via governments, commonly called upon during disasters to provide emergency response, support payments, reconstruction funding, and other ways to help communities and businesses get back on their feet; and
Via private individuals and companies that, in many cases, must simply absorb their losses and attempt to move on.
“What we are increasingly seeing in the climate change era is the migration of risk – and, therefore, losses – from the first of these (insurers) to the second and, most worryingly, third groups. In the Northern Rivers floods in NSW, insurers paid claims of around $5b – a figure that is highly regulated, fully disclosed, and easy to track and analyse. It’s estimated that the losses for government, private citizens, and businesses were three times greater at $15b – an amount that is not only much larger but also largely unreported, little understood, and utterly opaque,” Summerhayes said. “We are seeing, in real time, a transfer of risk back onto businesses and individuals, with governments as a safety net. In which case, the costs are passed back to businesses and individuals anyway via the tax system.
“It is a truth that company directors and business leaders cannot afford to ignore. As climate change impacts worsen, businesses and individuals who are highly exposed will face ongoing escalating premiums or even have coverage withdrawn. In some cases, they may find themselves effectively uninsurable. If you operate in a sector or location that is particularly exposed – or rely on commodities or investments that are – this could easily be your future. The good news is that there are things you can do.”
What is genuine risk sharing?
Summerhayes said real risk sharing starts with understanding and accepting that increasing resilience is necessary for those playing significant roles in our economy and society.
“Climate change impacts all aspects of society and all parts of our economy. That means we need a far more holistic approach to dealing with the risks it throws up, one that not only acknowledges the interconnectedness of businesses, governments, citizens, and insurers but leverages it to become a strength,” he said.
The Zurich report suggested more open sharing of data and information with businesses. Moreover:
Take a longer-term view;
Greater alignment between real levels of risk and premiums;
Insurers and others must see and act on the whole risk environment, including having greater visibility of the uninsured and what risk looks like to them.
“The message for company directors should be clear and urgent. Not everybody will emerge unscathed – or perhaps emerge at all – from this defining decade. However, those who think beyond that time frame and act and plan accordingly can not only survive but also prosper in the emerging low-carbon economy,” Summerhayes said.
