Climate change has caused the development of extreme weather conditions that have gravely affected the lives of people, and which may, in turn, cause insurance to become more expensive, according to a climate expert.
Ernst Rauch, a climate expert affiliated with reinsurance company Munich Re, talked about how, regardless of the damages incurred due to a weather event, there will always be someone who needs to pay for it, like insurers, the state, or the person who experienced the damage.
“If there is more damage, someone has to pay for it,” said Rauch in a Microsoft Start article.
Notably, insurance works in a way where many people will sign up to get coverage but only a few of them experience losses and receive compensation. Should there be a large number of people who are impacted by losses, insurers will need to pass on the risk and increase its premiums. With some extreme events being too expensive, insurers pass some of their risk to reinsurers.
In the article, Rauch pointed out that while insurers in California only covered between $1 billion and $3 billion in damages over the past decades, recent years saw annual insurance claims reach more than $10 billion.
“The amount of insured damage resulting from natural disasters now annually totals around $100 billion worldwide. Eighty- to 90% of these damages are weather-related,” said Rauch.
He further noted how only half of the natural disasters in the world were actually covered by insurance, pointing out how Germany only had flooding coverage for half of all its buildings.
Rauch believes that damage prevention and efforts in limiting climate change are important in controlling costs and said that these were vital measures in places where climate risks were too high for insurers to offer affordable policies.
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