The increased frequency and severity of natural hazards puts greater onus on insurers and reinsurers to build their modelling capacity to accurately price disaster risk.
Three senior reinsurance executives will discuss climate change ramifications in a panel session at the AIDA XVI World Insurance Congress (WICA 2023).
The Australian Insurance Law Association (AILA) will host the international insurance law association AIDA’s flagship event on 30 August to 1 September 2023 at the Melbourne Convention and Exhibition Centre.
Scott Reeves, Head of New Markets at Munich Re Australasia, says the impacts of climate change are becoming more evident as the world experiences increasingly frequent and more erratic extreme weather events.
“In the longer term, how well we as a society can respond hinges on our capacity to understand and measure the risk of change.”
Trent Thomson, Head of Australia & New Zealand at Swiss Re, says natural hazard events require mitigation and adaptation measures involving all stakeholders, combined with risk transfer.
“We must ensure action isn’t delayed and that the focus remains on proactively managing the increasing risk itself.”
Mr Thomson says the insurance industry must continue to collaborate with governments to manage risk, and build capacity to model and accurately price disaster risks. “We can also increase our efforts to improve insurance accessibility and penetration by developing more flexible and efficient forms of coverage.”
Karl Jones, Head of Global Strategic Advisory – Asia Pacific with Guy Carpenter & Co, says the reinsurance broker’s modelling and analysis helps manage clients’ uncertainty because “there is a great deal of variability around the impacts of climate change across Asia”.
He says Australia and New Zealand have good levels of insurance penetration, but “across Asia, we see many markets with significantly less coverage”. In markets where the protection gap – the difference between what’s insurable and what’s insured – is broader, societies are less resilient and more vulnerable.
Mr Reeves says fewer than half the global losses from natural disasters are currently insured. “Continued development of innovative insurance solutions is one crucial aspect to narrowing the insurance gap.”
Mr Thomson says the insurance industry can continue to tackle the climate crisis at its source, by helping to accelerate the transition to greener infrastructure and lower-emission energy.
He says insurers and reinsurers’ specialised knowledge and data can help ensure future-proof infrastructure remains financially viable, but the changing risk environment means governments, businesses and other stakeholders all must participate.
Mr Jones says the increasing cost of risk and insurance is often cited as a challenge, but governments can support the industry and communities by changing the way insurance taxes, like stamp duty and emergency services levies, are applied. “All stakeholders have roles to play in reducing the cost of risk. For example, reducing risk through mitigation measures – should these be incentivised by insurers’ pricing or introduced by government legislation? It needs a combination of both.”
Mr Jones praises property buybacks in flood-prone areas, as is occurring after the 2022 floods in northern NSW and Queensland, but he says it could take many years for those initiatives to make material inroads.
Mr Thomson says macroeconomic factors, like the resurgence of inflation, supply chain disruptions, labour shortages and rising construction costs, all add to the financial burden of post-disaster recovery. “That’s why proactive risk management and insurance should be prioritised.”
The panellists’ views suggest a robust discussion will ensue at WICA 2023.
Congress chair and AILA’s immediate past president Angus Kench says WICA 2023 is a unique opportunity to draw international visitors from AIDA’s global chapters to Australia.
The event starts with presentations from each of AIDA’s 13 working parties that closely examine specific insurance issues from global and regional perspectives.
Panelists and expert speakers will then present sessions on four key themes – climate, conflict, ESG, and innovation and careers.
Australia has hosted the prestigious World Insurance Congress – held every four years – only once before, in Sydney in 1994.
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