After one of the worst Atlantic hurricane seasons in history, the world’s biggest insurers say the industry needs to get its act together if it wants to survive climate change.
Insuring against weather natural disasters could reach unaffordable levels for households and companies, while the potential damage is so unpredictable it might be impossible to model — an unacceptable risk to insurers.
“Sometime in the future there will be the situation where people cannot afford any longer to buy catastrophe insurance — this is what we want to avoid,” Ernst Rauch, the head of the Corporate Climate Centre at Munich Re.
Munich Re, the world’s largest reinsurer, suffered a 1.4 billion euro (US$1.63 billion) loss after hurricanes Harvey, Irma and Maria sent claims soaring.
Contrary to Warren Buffett’s view that climate change will spur demand for coverage and boost profit at his insurance companies, the risk is that the opposite unfolds as shifting weather patterns render disaster-prone areas uninsurable. Finding ways to prevent this is on the agenda of UN-backed climate talks in Bonn, Germany, this week.
The onus of bearing the expense of rebuilding after hurricanes, floods and earthquakes already falls disproportionately on governments.
Insurers are on the hook for only about 10 percent of US$75 billion of damage in Texas caused by flooding after Hurricane Harvey, according to AIR Worldwide. That is because most standard US home insurance policies do not cover flooding as covered by most policies. It is a similar story in Fiji, hit last year by its worst cyclone ever, where less than one in 10 people own insurance.
“It’s a big concern of Swiss Re that there’s such a huge gap between the economic losses and what is insured,” said Peter Zimmerli, the head of atmospheric perils at Swiss Re, the second-biggest reinsurer. “Some of the signals of global warming are just there — they can’t be debated anymore.”
Climate change is causing temperatures to get warmer, sea levels to rise and natural disasters to get more severe, trends that are set to worsen as the planet keeps heating up, scientists at the International Panel on Climate Change said.
Insurers have not kept up with the shifting tides because they still assess future risk based on what has happened in the past, said Tom Herbstein, who runs an insurance project called ClimateWise at the University of Cambridge.
As conventional insurance gets pricier, communities might opt to invest in risk mitigation, he said.
“We’re living in a world where risk is growing exponentially,” said Herbstein. “Climate change fundamentally challenges the existing insurance business model because it is rendering actuary analysis in many places obsolete.”
Steps to adapt to the new normal are under way. At this week’s talks in Germany, the G7 is to discuss a plan to increase access to direct and indirect insurance coverage against climate changed to as many as 400 million people in developing countries by 2020.
Swiss Re’s Zimmerli pointed to parametric insurance, which pays out predetermined sums in the event of disasters, as a way of making catastrophe policies more widely accessible. Swiss Re backed such a plan in China that allows people living in coastal provinces susceptible to typhoons to buy coverage on their mobile phones, eliminating administration costs. If a storm strikes, they need to only upload a photo of the damage to trigger payment.
US insurers have been slower to adjust in part because the issue is so politicized, said Cynthia McHale, director of insurance at Ceres, a sustainability advocacy group in Boston.
US President Donald Trump denies that climate change exists and has pulled the US out of the Paris climate accord.
That attitude needs to change if the industry wants to be ready for the likelihood of more frequent super storms, Rauch said.
“Those who deny something is changing in our atmosphere will have a bigger problem in the future because they don’t see the need for adaptation,” he said. “Our US clients understand the numbers. Maybe they don’t want to hear about climate change, but they look at the numbers and the numbers speak for themselves.”
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure