Climate Change Impact on Insurance Sector
Insurance Industry Stability At Risk Without Stronger Collaboration On Climate Change, New Reports Warn.
London, 30 September 2024 — A series of reports released by the Royal Meteorological Society (RMetS) this week highlight the critical challenge facing the insurance industry in actualising opportunities emerging from climate change.
The reports, published in partnership with WTW, emphasise how insurers can future proof their businesses and the sector at large by working with academia to better understand climate risk. The three reports identify key areas where improved cooperation between academics and industry could benefit insurance firms and their customers, improving the efficacy of research and the use of climate projections.
Risks to Insurers
The reports underscore that, despite progress in understanding natural catastrophes, there are still uncertainties in our understanding of the historical variability of extreme events. Furthermore, the full scope of future risk is uncertain due to limitations of current assessment tools. These uncertainties pose a substantial risk to insurers’ ability to accurately assess and price climate-related risks. Without a robust understanding of these risks, insurance firms may face challenges in maintaining financial stability, as they could either underprice policies and face significant losses or overprice them and lose market competitiveness.
Moreover, the reports suggest that without improved collaboration with academia, insurers risk continuing to fund research that is either too narrowly focused on specific end-users or misaligned with the broader goals of the industry. This misalignment may result in ineffective risk management strategies, further threatening financial stability.
Opportunities for Insurers
The reports stem from an industry-wide workshop hosted by RMetS earlier this year, which brought together experts from across the UK's insurance and financial sectors, along with academics and climate service professionals. The workshop revealed a strong willingness from both the private sector and academic communities to work together in tackling the most pressing climate challenges facing the insurance industry.
This collaboration presents a significant opportunity for insurers to refine their view of risk, leading to more accurate assessments and better-informed decision-making. By engaging with academics throughout the research journey—from project design to development—insurers can ensure that research outcomes are actionable and tailored to client need.
Hannah Mallinson, Science Engagement Manager at the Royal Meteorological Society said,
"As the leading independent expert in weather and climate, the Royal Meteorological Society is delighted to have collaborated with WTW to report on the findings from our recent workshop. This initiative clearly highlights the value of improved collaboration between the insurance industry and academia. Such dialogue will not only increase the likelihood of achieving timely, impactful and more scientifically robust research outcomes, but also translate into an improved view of risk, helping to safeguard livelihoods in a changing climate with increasing weather extremes."
Dr. Daniel Bannister, Weather & Climate Risks Research Lead, WTW Research Network, WTW said,
"Climate change brings risks that are urgent and complex, and these reports show the need for collaboration across sectors to address them. By partnering with the Royal Meteorological Society, we are helping guide the insurance sector toward meaningful change while ensuring academic research focuses on what matters most to our industry. These contributions will lead to stronger risk management tools, helping to protect businesses and communities in an increasingly uncertain world."