How climate change is raising the cost of Insurance

Despite government initiatives and the UK’s 2050 target to reduce emissions by at least 100% from levels captured in 1990, worldwide attempts to reduce climate changes have not yet hit the mark. This article discusses the impact of climate change on Insurance premiums.

The rise of severe weather 

As severe weather is becoming increasingly recurrent and extreme, individuals and businesses are seeing a rise in weather-related incidents. So called ‘100 year floods’ are happening on a regular basis, with the recent flooding in South Yorkshire and the East Midlands being a prime example of how catastrophic these can be.

Flooding  not only affects physical property but may also mean its occupants have to seek alternative accommodation or temporarily cease to trade. Insurers are therefore making more substantial payments for flood losses and in some cases being overwhelmed by the volume of claims, leading to shortages of loss adjusters who assist in the immediate remedial activities.

Short-term changes, long-term damage 

The extreme freeze in early 2018 cost UK insurers £194m over three months for burst pipe claims, while the following extreme heatwave caused over £64 million of subsidence damage.

Ernst Rauch, Munich Re’s chief climatologist said: “If the risk from wildfires, flooding, storms or hail is increasing then the only sustainable option we have is to adjust our risk prices accordingly. In the long run it might become a social issue…”

Find the right balance  

With the current economic climate remaining modest, with plenty of uncertainty in the air, it’s essential that insurance remains affordable to those who need it. Yet, getting the balance right to offset the increased risk, and determining what to attribute one-off incidents to is not an easy task.

Nicolas Jeanmart, head of personal & general insurance and macroeconomics at Insurance Europe said:

“The sector is concerned that continuing global increases in temperature could make it increasingly difficult to offer the affordable financial protection that people deserve, and that modern society requires to function properly,”

Adapting to change 

For those concerned about rising insurance costs, reassurance can be found in adaptations which have already been made by the insurance industry. From escalating flood concerns, schemes such as FloodRE have been implemented and insurance is increasingly becoming a part of resilience measures.

To find out more about protecting your business or property from extreme weather incidents please do not hesitate to contact us.