Climate change markedly impacts the insurance market, driving up costs and complicating risk assessments due to increased frequency of extreme weather events. Insured losses for the first half of 2023 were $62 billion, a significant increase from previous years, with Brazil experiencing unprecedented disaster-related financial impacts. Insurers are exploring advanced predictive tools and adapting their strategies to address emerging risks and regulatory pressures to adopt sustainable practices.
The insurance industry is facing significant challenges due to the effects of climate change, which have added layers of complexity to risk management and coverage provision. The rising frequency and intensity of extreme weather events necessitate urgent revisions in risk classification models for insurers. In the first half of the year alone, losses from natural disasters reached an alarming $120 billion globally, with 68% attributed to severe weather events, according to Munich Re, a prominent reinsurer. Insured losses, amounting to $62 billion in this period, surpassed the previous decade’s average of $37 billion. In Brazil, which has historically experienced minimal disaster-related losses, recent catastrophic events, such as the devastating floods in Rio Grande do Sul, have led to historically high financial impacts exceeding R$6 billion. A report from the Swiss Re Institute underscored that in 2023, Latin America faced $5.1 billion in insured losses from 27 natural disasters, with economic losses nearing $16 billion. Extreme weather accounted for a staggering 76% of global insured losses, with the US experiencing severe losses of $45 billion from storms and tornadoes, and Dubai suffering $8.3 billion from flooding. Forecasts for 2024 exhibit volatility due to unpredictable climatic changes, making it difficult to accurately estimate potential losses. “We are outside the hurricane season, so making projections is difficult because an event like this can significantly alter estimates. However, it is likely that in 2024 we will face losses of around $150 billion related to extreme weather events,” commented Karsten Steinmetz, CEO of Munich Re. Swiss Re advocates for improved risk assessment methodologies to account for the increasing unpredictability of climate events. Specific recent events, including cyclones in Brazil and flooding in Rio Grande do Sul, highlight the necessity for enhanced risk evaluations. Fred Knapp, president of Swiss Re Brazil and Southern Cone, emphasized the importance of educational outreach to both brokers and clients to facilitate access to suitable insurance products. The challenge to identify emerging risks is exacerbated by their deviation from traditional events previously analyzed by the industry. “We used to view things more broadly and at specific portfolio levels. Now we need to see where other exposures, like landslide possibilities, are located. The level of risk detail needs to increase,” Mr. Knapp indicated. Of note, Jakarta has also begun to revamp its insurance offerings due to heightened climate risks, illustrating a global trend towards reevaluating coverage options. The premium pricing and risk estimation complexities parallel pressures on the insurance sector to enhance climate responsibility, with companies urged to finance sustainable initiatives. Felipe Nascimento, CEO of Mapfre Brazil, stated, “Insurers, as major investors, are being encouraged to direct investments toward sustainable projects and companies. This requires reassessment of investment strategies.” In Brazil, the Superintendence of Private Insurance (Susep) is actively addressing these concerns by promoting regulations that integrate sustainability considerations into the risk assessment framework. Policies are concurrently rising, with property insurance rates in Latin America and the Caribbean increasing by 2% in 2024, influenced notably by conditions in Brazil. Moreover, Guy Carpenter has developed a new predictive modeling tool to evaluate extreme climate risk, utilizing rich datasets to enhance accuracy in loss estimation in the event of climate disasters. As of August, ten insurers had adopted this tool, which underscores Brazil’s proactive stance toward managing climate-related insurance risks.
The topic of climate change and its influence on the insurance market is increasingly pertinent as extreme weather incidents rise in both frequency and severity. Insurers are adjusting their risk management strategies to account for these changes, leading to comprehensive modifications in how they evaluate potential losses and classify risks. Notably, the economic implications of climate-related disasters have prompted significant attention from industry leaders and regulatory bodies, especially in regions historically less affected by such events.
In summary, the insurance sector is navigating a landscape markedly altered by climate change, necessitating innovative assessments of risks and coverage. With escalating losses resulting from extreme weather, insurers in Brazil and beyond must rely on data-driven insights and forward-thinking regulatory frameworks to adapt and thrive. Continuous educational efforts and collaborations are pivotal in ensuring that both the industry and consumers can effectively leverage available insurance to mitigate the potential impacts of future disasters.
Original Source: valorinternational.globo.com
