SIRC 2021: Can climate disasters be tamed?
November 18 2021 by InsuranceAsia News
(Re)insurers are well placed to advise policymakers on climate change, Aon Reinsurance’s Asia Pacific chief executive George Attard said during a panel discussion at the 2021 Singapore International Reinsurance Conference (SIRC).
This is possible because the sector has been using advanced weather forecasting and analytical catastrophe management techniques for decades, he explained.
There is an urgent need for cooperation and concerted efforts to address the heightened risk of climate change, the panel agreed.
The (re)insurance sector is one of the few industries that can actually put a price on uncertainty, Attard told participants during the panel discussion titled “Floods, Drought, and Wildfires – Can these climate disasters be tamed?” which took place on the last day of the conference.
Climate risks are causing the insurance sector to rethink its investment strategies, as they are increasingly concerned about the implications of climate change on the construction of their portfolios, according to a recent BlackRock study.
“Ultimately insurers and reinsurers are key components of the global risk financing system required to successfully navigate the climate crises,” Attard said, citing the Blackrock study, which showed that (re)insurers represent nearly US$30 trillion in investable assets, and “are now looking at prioritising sustainable investment as concerns over climate change intensify.”
(Re)insurers need to factor in climate change into pricing, underwriting, exposure management, as they assess their risk appetite, Attard said. There are some that have exited underwriting property catastrophe risk altogether, he added.
As more is required from the industry, Robert Drysdale, head of South-East Asia at Descartes Underwriting, said that parametric insurance would help as it offers extremely wide coverage for most economic losses, with no standard restrictions or deductibles or business interruption exclusions.
“Parametric insurance has the flexibility to fill the gaps in the market and provide cover where traditional insurance products cannot,” Drysdale told participants at the conference. It can be used to carve out difficult perils such as flood to increase traditional reinsurance risk appetite, he explained.
Echoing the views of other panelists, Sibylle Steimen, managing director for advisory and services at Allianz Re, said that there is a need for collaboration and open-source access. It is not possible for each player to undertake their own study and make a conclusion in isolation, she pointed out, “especially in certain markets which may not be as well developed as others.”
Climate risk is underestimated, Steimen said, citing the recent example of the floods in Germany earlier this year. Despite the high insurance penetration in markets like Germany, the recent floods demonstrated that while clients thought they were protected under their insurance policies — unfortunately many were not — as they only had wind and hail cover.
“Things like that cannot happen any more and we have to help our customers to understand that their risk footprint might differ from what their parents or grandparents had perceived,” she said.
There is a need for the (re)insurance sector to join forces with the authorities and educational institutions to make clients aware of the potential risks and the options available, Steimen said.
Gary Rynsard, executive director and board member of SEADRIF Insurance, said that the (re)insurance market needs to provide a range of financial instruments to enable governments to have the necessary tools to plan for disasters.
As (re)insurers are likely to be very conservative in their pricing, it remains to be seen whether governments will accept these prices, Rynsard questioned. Pooling mechanisms such as SEADRIF — established to help build financial resilience to climate-related disasters and provide quick payouts in the event of disasters — “can address the coverage gap, help spread risks, and build economies of scale,” he said.
Allianz Re’s chief executive Holger Tewes-Kampelmann agreed that the benefits of pooling have not been fully utilised by the industry, but that pooling would help the market become more resilient.
Allianz’s Chris Townsend on climate action
Chris Townsend, a member of Allianz’s board of management, said at the SIRC keynote address on November 17 that the industry needs to do more to address climate change.
“Recent case studies clearly show that emissions haven’t yet peaked. Instead, they came bouncing back to pre-Covid levels. This means climate commitments and actions of governments and companies so far are proven to be woefully insufficient. We need some intermediary targets, which will assign near term accountability,” Townsend told SIRC delegates.
Townsend added: “[Climate change] will impact developing countries, which . . . have much lower insurance penetration and much greater financial constraints. We really need to work on pre-emptive risk mitigation on allocating funds to building resilience in vulnerable areas, and across the board to strengthen public private partnerships for emergency relief, and this is critical work for all of us.”
He encouraged (re)insurers to work towards exposure based and more forward-looking modelling. Townsend said they could join alliances and work towards decarbonising their underwriting and investment portfolios. In addition, he said firms need to steer to sustainable investments, and identify and manage sustainability risks correctly, adding that the availability of high quality, consistent data is essential.
Townsend also said there should be consistency between financial reporting and sustainability reporting requirements, and how companies should be mandated to disclose climate related KPIs.
-
Guy Carpenter | Private equity’s reshaping of the Asian life sector has further to run
PE-backed reinsurers provide access to asset classes and investment expertise that often don’t exist within the traditional carriers themselves.
