How climate change could crash the global insurance sector
Munich Re, the world’s largest reinsurance firm, warns premium rises could become a social issue
Climate change could make insurance unaffordable for ordinary people leading to wide-ranging social issues, the world’s largest reinsurance firm has warned.
Citing £18bn of losses from the recent Californian wildfires, Ernst Rauch, Munich Re’s chief climatologist, told The Guardian costs could soon be widely felt, with premium rises already under discussion with clients holding asset concentrations in vulnerable parts of the state.
“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,” he said, warning that “affordability is so critical [because] some people on low and average incomes in some regions will no longer be able to buy insurance.”
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
“What makes the insurance industry's relationship with climate change so unique is the fact that the industry is built on the concept of managing risk,” says The Ecologist, and “with climate change set to be one of the greatest risks of them all, insurers stand to be impacted in significant and far-reaching ways.”
Analysing decades worth of data, Munich Re, the world’s largest reinsurance company, concluded the spike in wildfires, and hence insurance claims, was “broadly consistent with climate change”.
It is the first time an insurer has linked wildfires to climate change, and the repercussions across the entire sector could be huge.
The UK insurance industry is the largest in Europe and the third largest in the world. The industry manages total investments that equate to 25% of the UK’s net worth, “making it pivotal to our economy”, says the Ecologist.
This “may also influence several court cases testing the liability of fossil fuel companies for the effects of global warming”, The Guardian says.
In the US, for example, numerous cities and one state — Rhode Island — are suing the oil industry over the impact of fossil fuel emissions.
“The litigation is likely to run for some years, and it is not yet clear whether it will be decided in state or federal courts”, says the Financial Times, “but if the 38 oil companies being sued lose, they are very likely to claim some or all of their costs back on their insurance policies.”
Neil Beresford, partner at law firm Clyde & Co, predicts “the insurance industry’s exposure could go up to tens or even hundreds of billions of dollars.”
This could easily see firms increase their premiums, the knock-on effect of which could pose a threat to social order warns Nicolas Jeanmart, the head of personal insurance, general insurance and macroeconomics at Insurance Europe, which speaks for 34 national insurance associations.
“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,” he said.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Elliott Goat is a freelance writer at The Week Digital. A winner of The Independent's Wyn Harness Award, he has been a journalist for over a decade with a focus on human rights, disinformation and elections. He is co-founder and director of Brussels-based investigative NGO Unhack Democracy, which works to support electoral integrity across Europe. A Winston Churchill Memorial Trust Fellow focusing on unions and the Future of Work, Elliott is a founding member of the RSA's Good Work Guild and a contributor to the International State Crime Initiative, an interdisciplinary forum for research, reportage and training on state violence and corruption.
-
The best TV spy thrillers
The Week Recommends Brilliant espionage series, packed with plot twists to keep you hooked until the end
By Irenie Forshaw, The Week UK Published
-
Ukraine-Russia: are both sides readying for nuclear war?
Today's Big Question Putin changes doctrine to lower threshold for atomic weapons after Ukraine strikes with Western missiles
By Harriet Marsden, The Week UK Published
-
Hugh Corcoran and The Yellow Bittern: is the customer really always right?
Talking Point A new London restaurant has caused controversy by complaining about customer eating habits
By Richard Windsor, The Week UK Published
-
How safe are cruise ships in storms?
The Explainer The vessels are always prepared
By Devika Rao, The Week US Published
-
Biden visits Amazon, says climate legacy irreversible
Speed Read Nobody can reverse America's 'clean energy revolution,' said the president, despite the incoming Trump administration's promises to dismantle climate policies
By Peter Weber, The Week US Published
-
Climate change is threatening Florida's Key deer
The Explainer Questions remain as to how much effort should be put into saving the animals
By Justin Klawans, The Week US Published
-
Is Cop29 a 'waste of time'?
Today's Big Question World leaders stay away as spectre of Donald Trump haunts flagship UN climate summit
By The Week UK Published
-
At least 95 dead in Spain flash floods
Speed Read Torrential rainfall caused the country's worst flooding since 1996
By Peter Weber, The Week US Published
-
Earth's carbon sinks are collapsing
Under the Radar Forests and soil are not operating as usual
By Devika Rao, The Week US Published
-
Why the Earth's water cycle is under threat
Under The Radar Disturbances in the system that moves water around the world place more than half of global food production at risk
By Chas Newkey-Burden, The Week UK Published
-
Climate safe havens may be a thing of the past
Under the radar Safe spaces are few and far between
By Devika Rao, The Week US Published