Articles - Green is the new black

There was a time when it was regarded as a sign that a person was boring if they just talked about the weather. That’s no longer true as the alarming rise in extreme weather events happening all over the world is emerging as a huge concern for everyone. These events show that there is a change happening driven by the climate altering in unexpected ways across different parts of the globe.

 By Tom Murray, Head of Product Strategy for LifePlus Solutions at Majesco.

 The result is a big rise in the risks to life, health and property for many people across the planet. Places in North America that rarely experienced excessive heat are now having heatwaves as a regular occurrence and for the people there, the risk to them and their property is very different from what it was before. At the same time, much of Europe is now experiencing extreme levels of flooding in the middle of summer, an unheard of problem that is damaging property and taking lives whilst suppressing economic activity.

 For the insurance industry, this demands a major shift in the way risks are assessed for various regions as the probability of fire in properties that were previously at normal levels are now increasing in line with the incidence of wildfires. Similarly, deaths occur more often in areas experiencing excessive temperatures, either hot or cold, than they do in more temperate climates. The bottom line is that as the climate changes in different parts of the globe, more countries experience more extreme weather. The knock on effect means that different hazards will emerge in places and among populations who were previously at much lower risk.

 It is the job of the insurance industry to be creative and come up with new underwriting approaches and new products to help people protect themselves against these risks. As the demand in the market rises for products more aligned to the risks that people are experiencing, rapid innovation is going to be a key attribute for the life and pension company of the future.

 Life and P&C insurers hold data that allow them to assess the risks their clients are exposed to. However, the models are going to have to get bigger and more dynamic as companies try to assess the impact of climate change and the effect it is likely to have on the insurance market of the future.

 Given the scale of the data involved this is an area where insurers are going to have to get good at using machine learning and artificial intelligence techniques in order to manage these huge volumes of data and to trawl through it quickly enough for the results to be relevant. Insurers needs to partner with experts in other sciences and industries to get more information and to take a wider view of the impact of climate change.

 Working with government and industry groups to try to mitigate climate risk in different areas will be key. Reducing policyholders’ risk by building resilience will ultimately benefit the company as it reduces its exposure to the risks posed by climate change and will allow them to offer insurance at a price that is reasonable for the consumer.

 There is also the brand image to consider, with insurers increasingly trying to reduce their own carbon footprint by using digital methods for interactions between their customers and staff. The benefit to the planet of reducing unnecessary travel was shown clearly during the heaviest days of the lockdowns across the planet as energy related greenhouse gas and air pollutant emissions in OECD countries dropped by seven per cent. If the climate situation continues to deteriorate, it is going to become more important for companies to show that they are playing their part in trying to reduce their impact on the planet.

 Clearly this is a huge subject and cannot be addressed in any depth in a single magazine article. However, Insurers will be greatly affected by climate change and have a big role to play in dealing with it, both from the point of view of reducing their own footprint and in devising solutions to help others mitigate the risks arising from the changes that are already underway. Any insurer that isn’t working on understanding their role in this and positioning their company to be a leader in dealing with the challenge is taking a major risk themselves, one for which they have no insurance.


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