Forest fires in Europe, floods in Pakistan, heavy droughts throughout the summer: “the impact of climate-related disasters has increased in our result and has become much more severe,” said Hux. The impact has been felt elsewhere too, where economic losses due to natural disasters amounted to $72bn in the first half of 2022. For insurers, it reached $38bn. In Luxembourg, over the last three years, floods and storms have cost about €230m so far.
The risk for the (re)insurance sector lies in the underinsurance of society, which creates uncertainty. The protection gap--uninsured claims that nobody but the insurer can cover--as well the stagnation in adapting insured amounts to inflation and the lack of knowledge on secondary perils need to be addressed, according to Hux.
The insurer also has a moral obligation to extend the supply to properly monitor this climate change and to continue to guarantee stability in society
Secondary perils--as opposed to the ‘Big Four’ [European winter storms, Japanese and Californian earthquakes and Atlantic hurricanes]--"on the balance sheet of a reinsurer or insurer have become much more important.” This is why, even if they are more difficult to model, “there is a real collective need for a better understanding, including data collection to accompany this movement towards appropriate and technically sustainable coverage of these secondary perils.”
“The insurer also has a moral obligation to extend the supply to properly monitor this climate change and to continue to guarantee stability in society,” said Hux. Insurers and reinsurers should therefore not just adapt their services to current climate and inflationary challenges, but also invest in the prevention of climate-induced damages (through a better collaboration with public authorities).
Reducing their own internal carbon footprint, as well as investing in renewables and considering the exclusion of some industries in their portfolio, will also help the sector in keeping the ‘societal promise made 150 or 200 years ago.’