One of the main effects of climate change on insurers is through the expected increase in natural catastrophes (NatCat)-related claims. To assess the potential risks associated with this trend, as a first step, supervisors need to have the data and tools to understand and monitor insurers’ current exposure to NatCat.
Consideration of climate change’s effects on insurance has focused primarily on physical impacts, namely property and crop damage. However, there’s also reason for concern about life and long-term carrier liabilities. The changing climate is poised to increase human mortality and morbidity, particularly in a high greenhouse gas emissions scenario. Chronic changes like elevated temperatures and prolonged drought — as well as acute events like increasingly frequent and severe hurricanes and wildfires — can significantly affect health and longevity.
Until recently, life and health insurers in developed economies limited their climate change focus to governance and disclosure. Now other dynamics are increasingly coming into play. We’ve experienced another summer of extremes: record heat, flooding in places not considered flood zones and large-scale wildfires. All have negatively affected health and cost lives.
In fact, we’re already witnessing unwelcome change. Water scarcity and shifting precipitation patterns have led to cascading health risks. Notably, drought-fueled wildfires have caused death and disablement and even destroyed entire communities, limiting access to healthcare when it’s been needed most. In addition, these fires have compromised water quality by causing erosion and flooding that have contaminated water systems locally and downstream. They’ve also significantly affected air quality far beyond the fires’ physical boundaries. Last but not least, climate-induced anxiety and depression over personal trauma and loss, as well as existential concerns about the future, have had serious mental health implications on affected communities and beyond.