To achieve climate resilience, insurers must fundamentally change their business models

Capgemini and Efma’s World Property and Casualty Insurance Report, published today, reveals that climate change is hurting the insurance industry. This report reveals that insurance companies who focus on creating climate-resilient business models are better placed to earn customer trust and increase their relevance and profitability. The inaugural report titled ‘Walking the Talk: How insurers can lead climate change resiliency’, addresses the impact of one of the most pressing issues in modern times on the Insurance industry.

The insurance industry is being negatively affected by increasing numbers of weather events. Insurers will need to be able to both prevent and protect future damage. According to the report:

  • Globally, climate change has caused economic losses to increase by 250% in three decades.
  • 73% rank climate change as their top concern.
  • With 40% of customers naming climate change as their top priority, insurers also consider profitability and insurability as the most important climate-related concerns.

In the past 30 year, natural catastrophes have resulted in a 3.6x increase for insured losses and a 2x decrease in non-insured ones. This is a troubling trend, but it offers an opportunity for insurance companies to pivot and rebalance to better serve customers in a changing landscape, according to the report.

Future-focused insurers will incorporate climate risk mitigation strategies in their operating and business models

Fundamental changes are necessary to create customer-focused and resilient business models. According to the report, more than 80% (individual and small-business clients) are aware of climate changes and have taken at most one sustainable action in the past 12 months. However, more needs to be done to combat the detrimental effects of climate change as only 8% of insurers surveyed are insurance front runners or “Resilience Champions”(described in the report as those With strong governance and advanced data analysis capabilities, strong risk prevention, and resilience through their investment and underwriting strategies.

The need to balance risk prevention and risk management

To ‘walk the talk’ on climate resiliency, insurers must revisit their own business models and balance risk prevention with risk management. The report findings suggest that a “climate resiliency framework” is key to build the required capabilities within a changing risk landscape. The report encourages insurers think critically about their risk assessment models, implement risk prevention at scale, drive sustainable investment, underwriting strategies, and move beyond exclusions, divestments, in order to build a resilient ecosystem. The report highlights that among those deemed as ‘Resilience Champions’,

  • 82% of companies have a chief sustainability officer or an equivalent.
  • Nearly 77% of companies have climate-risk data embedded in their products or services.
  • Nearly 60% are now in advanced stages of deploying machine learning-based pricing model.
  • Around 53% of people are now accessing new data sources such as satellite data, remote sensors and weather stations.

“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks. A focus on sustainability is a key component of smart business decisions. This will help insure their long-term relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind,”  Seth Rachlin is Global Insurance Industry Leader at Capgemini.

A corporate sustainability strategy must incorporate climate resilience

The report concludes with three key actions to fuel insurers’ climate resiliency journeys while boosting their relevance and profitability. Insurers must incorporate climate resilience into their corporate sustainability strategies. This should include clear actions that are assigned to the c-suite executives in order to ensure accountability and ownership. Second, insurers must rework their innovation approach to bridge the gap between long-term goals and short-term planning by embedding resilience across an insurance company’s entire value chain. Insurers need to rethink their technology strategy. This should include customer experience, product innovation and corporate citizenship. It is possible to do this by integrating technology such as IoT (cloud), AI, ML and quantum computing.

“While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market,”  John Berry, CEO at Efma.

Report methodology

The World Property and Casualty Insurance Report 2022 draws its insights from two primary sources – the 2022 Global Insurance Voice of the Customer Survey and the 2022 Global Insurance Executive Interviews. These primary researches combine insights from 29 markets, including Australia, Brazil, Canada and China.

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