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.”
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to