It is not exactly a secret that climate change has had a significant impact on the world already. Cities across the globe routinely set record highs in terms of temperature, natural disasters are becoming more common, and the winter season is getting shorter. Recently, a report published by the United Nations on the state of the climate showcased evidence that climate change is not only happening but also accelerating. A few highlights from the report include:
- We are on a pathway to more than double the 1.5-degree Celsius threshold that was agreed upon in Paris in 2015.
- An increasing share of carbon emissions can be attributed to towns and cities.
- To limit the impact of climate change to 1.5 degrees C, carbon emissions need to peak by 2025 and be slashed by 43 percent by 2030.
Given the inaction that we have seen so far, it is important for professionals in the Property and Casualty Insurance industry to be prepared. What do insurance agents and companies need to know about how this report might impact them?
Natural Disasters Will Become More Common
Without a doubt, one of the biggest impacts of this climate report on the insurance industry is that natural disasters will become more common. In particular, hurricanes will become more frequent, more severe, and more widespread. For example, there are several hurricanes that have struck the eastern coast of the United States as far north as New York and New Jersey. Even though this was previously extremely rare, it will only become more common. Hurricanes thrive on warm ocean water, and as the planet continues to rise, there will be more fuel for hurricanes. Expect hurricanes to become more common and for them to cause more damage.
In addition, wildfires will become more common as well. Even though hurricanes rarely strike the west coast of the United States, wildfires have become almost constant. As the Earth continues to warm, conditions become ripe for wildfires. These fires can move fast, turning thousands of acres into smoldering ruins. They can also cause severe fire damage, leaving many families stranded, and wondering what to do next.
Claims Will Become More Common
Of course, a side effect of the rising number of natural disasters is that claims will become more common. Given that property and casualty insurance covers injuries to the property owner and the property they own, expect claims to become more frequent. Policyholders purchase insurance for catastrophic financial harm, such as the damage caused by natural disasters, so companies should expect their policyholders to file more claims.
Furthermore, policyholders will probably read the policy more carefully to make sure it covers claims stemming from natural disasters. For example, flood insurance is typically its own entity, and insurance agencies should expect policyholders to clarify what is covered and what is not regarding water damage, particularly if they live in a zone that is vulnerable to hurricanes.
P&C Insurance Will Become Harder To Get
Unfortunately, just as many people will be more interested in purchasing an insurance policy, this type of insurance could also be harder to get. Some of the reasons why insurance agents may have a harder time convincing the company to write an insurance policy for a new client include:
- There could be more periods where insurance companies are issuing moratoriums in certain areas. Given that hurricanes and fires are becoming more common, companies will keep a closer eye on the weather, and they will be more aggressive in issuing a moratorium on new policies.
- This type of insurance is also going to get more expensive. Because more people will file claims, insurance companies will have to raise their rates to protect their interests. This could make the cost of an insurance policy more prohibitive for some people.
- Insurance companies will take a close look at their numbers and think carefully about what to cover and what not to cover. This might make it harder for policyholders to find a single policy that covers everything.
For these reasons, it is critical for insurance agents to stay in close contact with their policyholders and their insurance companies. That way, they can act as an educated liaison, providing accurate information to both parties.
What Should Insurance Agents Do?
So, what do insurance agents need to do in the current environment? There are several key steps they need to take. A few examples include:
- Insurance agents should encourage their companies to use advanced analytics to combat the inherent uncertainty created by climate change. The diversity and rising frequency of climate-related risks can be countered using advanced models that make more accurate projections for future losses. This will make it easier for insurance companies to figure out how to structure their policies.
- Insurance agents should work with companies and policyholders to encourage activities that alleviate climate-related risks. For example, companies could provide insurance discounts to policyholders who take steps to fortify their properties against severe weather events.
- Insurance agents should encourage their companies to discourage new projects in high-risk zones that could be prohibitively expensive to insure.
Most importantly, insurance agents need to prioritize communication. Education can go a long way toward reducing the threat of severe weather events. When insurance companies are aware of actions they can take to mitigate the threat of climate damage, and policyholders are aware of what they can do to protect themselves against a severe weather event, the entire insurance industry is better off.
Bracing for Future Climate Events
Clearly, the UN report on climate change contains a lot of bad news. It indicates that the temperature is still warming and that it is warming quickly. It also shows that severe weather events will become more common. On the other hand, there are also areas of opportunity. P&C Insurance agents can arm themselves with this report to push for positive actions on the part of both insurance companies and policyholders.
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