2 October 2023 2 min read

🌍 Adapting Non-life Underwriting to face Climate Change #3

Reinsurance Tutorials #3 - Season 3


Hi everybody 👋


Today, and for the third Reinsurance Tutorials video of the season, we will talk about "Adapting Non-life Underwriting to face Climate Change"


This subject will be addressed by CCR Re experts François Cahu and Georges Guzman.


Let’s start! 


[Georges Guzman] : Hello my name is Georges Guzman, I am a CAT modeler. 


[François Cahu] : And I am François Cahu, Senior Vice President Non Life Treatise Central and Northern Europe. 


[Georges] : Today we are here to speak about adapting Non Life Underwriting to face Climate Change. 


Why do we need to adapt to climate change? 
[Georges] : The movement is global and concerns all societies. In a globally mutualized insurance/reinsurance context, not adapting would mean increasing liabilities in all sectors, decreasing asset values and, in fact, having to increase capital requirements according to regulatory requirements. Not to mention, of course, the reputational risk in the market. 

Beyond the technical aspect of pricing, which takes into account the claims history and integrates a probabilistic vision of future CATs, the impacts of climate change are also taken into account through the evolution of contractual clauses. There is an emerging trend in the market to include conditions based on preventive measures from the insurer to the insured in the contracts. This is a clear sign of the integration of climate change effects into the underwriting process. 
[François] : It is true that insurers are also deploying new underwriting strategies by focusing on markets with sustainable investments and net energy transition, thus abandoning non-ESG compliant portfolios and meeting the requirements of their investors. 
The reinsurer's responsibility to its clients is to explain and support the transition of primary underwriting methods, thanks to its more global vision. This allows for the gradual transformation of policyholder portfolios into more sustainable and resilient versions, adapted to the new deal of atmospheric perils. 

What are the challenges in maintaining sustainable covers to face climate change? 
[Georges] : It is necessary to understand that the industry will not solve everything on its own by, for example, adjusting premiums and deductibles. A crucial role will be played by public authorities in adapting legislation on prevention to both mitigate the effects of climate change and adapt to its consequences. 
I would add that in order to keep cover affordable, investment must be made in prevention and risk reduction to allow for the future insurability of natural disasters as they become more frequent and more severe.  


[François] : Yes, the insurance industry has the capacity and certainly the will to contribute to the adaptation process by not limiting itself to the regulatory framework and its solvency rules, which could lead to an anti-selection process. 

We see that the insurance and reinsurance industries are increasingly exposed to secondary perils. 
In addition to major disasters that are particularly destructive, the reinsurance market is facing an increase in secondary perils. 
These are medium-sized events directly related to global warming, such as severe thunderstorms, high-impact hail events, forest fires, localized flooding, intense frost or heat events, and of course tornadoes. 
[Georges] : It is true that individually these events have a small impact, but they become particularly costly when added together. For the year 2020, their economic cost was estimated at 60 billion dollars. 

[François] : This upward trend in secondary perils is expected to increase as a result of global warming. In only three months, from June to August 2021, all over the world, weather disturbances have occurred: record heat, devastating floods and forest fires, storms, and heavy rains. 


[Georges] : And this series of disasters has not slowed down in 2022, with floods in Australia, hail in France, a snowstorm in the United States and a frost event in Great Britain. 


[François] : Secondary peril events are becoming more and more frequent, more and more intense, and affect all continents. They require specific modeling and represent a growing need for cover. They offer a growth opportunity and additional premium capacity for the market. 


[Georges] : Thanks François. 
[François] : Now the adaptation of underwriting to face Climate Change has no secret for you. 

Thanks a lot for watching this video.


[Together] : Goodbye. 



Bye for now 👋

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