As Australia faces more frequent and severe weather events, the insurance industry has been looking into ways to address climate risks.
Insurance Business TV (IB TV) episodes have revealed how some insurance companies have been looking to and could better look to address climate risks, including the impacts of climate change.
Sam White, CEO of Stella Insurance, highlighted underinsurance across Australia resulting from the significant impacts of climate change – and considered what type of insurance product could address the issue.
“We can't keep designing products that we designed last year, 10 years ago, 50 years ago. We live in a completely different world, and we need to work out what we can do to have a positive impact,” White told IB TV. “If I can't give you a policy that's going to make it right and put you exactly back in the position that you were in before, what can I do?
“[We can provide] a parametric insurance policy that gives you something that helps in some way and people don't have to suffer with complete lack of insurance.”
Ben Qin, head of North Asia and Australia for Descartes Underwriting, a firm that specialises in parametric insurance, said that parametric insurance is a “means to an end” in dealing with challenges resulting from climate change.
“Models based on historical data are no longer reliable, and insurers and reinsurers are nervous,” he told IB TV. “Some asset owners have no options, apart from self-insurance, because they cannot get traditional coverage, especially for wet perils. Instead, they are turning to parametric insurers like Descartes.
“Parametric insurance is an option available for many businesses where traditional underwriters have reined in capacity and appetite because of a lack of data and modelling to accurately underwrite catastrophe risk.”
In an IB TV episode, Ben Dunston, WTW's head of broking and placement in Asia, highlighted that insurers have been focusing on delivering on their environmental, social, and governance (ESG) initiatives.
“Within insurance, ESG [initiatives tend] to focus on coal and climate, about the main biting points, which is targeted at only a few industries,” Dunston told IB TV.
The situation in Ukraine, which has proven to be an agriculturally important player, could highlight a gap in insurer understanding where it comes to industry focus, according to Dunston.
“We now know that in Ukraine, they produce 20% of the world's high-grade wheat and about 40% of the world's sunflower oil,” Dunston said. “An area event related to climate change in an agriculturally important area such as Ukraine can lead to food shortages globally, which can drive inflation, and that can lead to serious social unrest.
“I think insurers will be looking at these macro factors and developments with some trepidation, and [they will question] whether they really have a good grasp on what the current situation is [and] how they shape the future.”
For Dunston, a good medium-to-longer term initiative for insurers would be developing a consistent measure of ESG underwriting information.
“Remember that the climate element is just one part of ESG, but it also doubles up with other thematic areas like inflation causing the claims quantum to increase and then look at social inflation causing litigation loads to increase,” Dunston said.
