How the P&C Insurance Industry is Responding to Climate Risks and Extreme Weather Events

The property and casualty (P&C) insurance industry is increasingly focused on the risks associated with climate and extreme weather events.

Recent reports from Swiss RE highlight that total insured losses worldwide from weather-related natural catastrophes surpassed $122 billion last year. Capgemini reinforces this concern, revealing a staggering 250% surge in economic losses over the past three decades due to climate and extreme weather events.

The growing concern is palpable. A recent Wall Street Journal article declared, "Climate Change Is Breaking Insurance." A report by AXA and The Council on Foreign Relations disclosed that 60% of insurance risk managers are concerned about the potential uninsurability of specific geographic areas due to climate change.

Climate risks threaten to drive up insurance prices and necessitate withdrawal from high-risk markets, mirroring recent exits as we've seen due to wildfires in California and hurricanes in Florida.

Insurers are critical in helping society prepare for and mitigate various financial risks. They can similarly play a pivotal role in addressing climate and extreme weather events. (Laura Drabik, Chief Evangelist at Guidewire, discusses this topic and outlines specific actions insurers can implement to mitigate climate risks in her most recent blog post.)

Property risk awareness is crucial for insurers to have an impact, particularly as demographic shifts -- and development, home buying, and home-building decisions - contribute significantly to the industry's exposure to natural catastrophes and extreme weather events.

There is a growing tendency for people to live and build in high-risk areas. People are moving to areas of higher risk for wildfires, floods, and hurricanes.

The population of Florida and Texas has doubled since the 1980s, and since 2010, Florida has experienced 15% growth, and Texas has experienced 16% growth. These states also stand out as the most frequently hit by hurricanes – and highly susceptible to floods and wind damage. Texas ranks as the riskiest state for tornadoes and Florida as the second riskiest for floods, according to HazardHub data. Both states also lead to other natural catastrophes and extreme weather events.

As natural catastrophes and weather risks increase, people are also increasingly moving to places highly prone to such events. And this is not just limited to Florida or Texas. (Read more on this topic: The Risk is Where You Live.)

Guidewire Expertise on Climate Risks and Insurance

Guidewire is a critical strategic partner in helping P&C insurers address climate, natural catastrophes, and extreme weather risks in several ways.

Guidewire executives and subject matter experts stand ready to offer insights, commentary, and data regarding the challenges posed by climate change to the insurance sector and the innovative technologies and partnerships aiding insurers in managing and mitigating the impacts of climate and extreme weather events.

HazardHub - Property Risk Data for Climate and Extreme Weather

Guidewire's HazardHub identifies risks associated with climate, natural catastrophes, and extreme weather events by providing insurers with the most comprehensive property risk data and hazard risk scoring.

With HazardHub, insurers can leverage over 1,400 risk factors for any U.S. property down to the address level and seamlessly integrate that into their core process applications. With HazardHub, insurers can improve risk selection with enriched property characteristics and risk scores and enhance pricing accuracy by introducing new risk variables. This empowers insurers to make better underwriting and pricing decisions in the face of climate change and any changing weather patterns – and contributes to more effective risk mitigation strategies.

Guidewire Insurtech Ecosystem - Helping Drive Innovation to Address Climate Risks

Guidewire's Insurtech Vanguards program and partner ecosystem additionally offer P&C insurers access to easy integration with innovative technology companies that are providing solutions to help manage different aspects of climate risk and extreme weather.

As an example, Guidewire ecosystem members Betterview (recently acquired by Nearmap) and Cape Analytics leverage aerial imagery, computer vision, and predictive analytics to assess property risk instantly and on demand.

Conclusion

In the face of climate change risks and escalating loss costs from extreme weather events, the insurance industry must address affordability challenges in high-risk areas. We can and must create a more sustainable and resilient future by emphasizing risk mitigation, utilizing the latest and most accurate data to assess risk, and implementing actual risk-based pricing.

Guidewire's commitment to innovation and empowering insurers to navigate the complexities of climate risks we believe will lead to a more sustainable and resilient future.

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Guidewire executives and subject matter experts can offer insights, commentary, data, and maps regarding the risks of climate and extreme weather events to the insurance industry and communities. Additionally, Guidewire executives can provide insight into the strategies, technologies, and insurtech solutions that insurers utilize to mitigate these risks, including those associated with climate, natural catastrophes, and extreme weather occurrences.

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Further Reading and Resources:

Wall Street Journal: Climate Change is Breaking Insurance. Here’s How Tech Could Save It.

Barron’s: The Reason Insurance is Getting More Expensive

New York Times: Climate Shocks Are Making Parts of America Uninsurable

Washington Post: Home Insurers Cut Natural Disasters from Policies as Climate Risks Grow

The Financial Times: The uninsurable world: what climate change is costing homeowners

Reports on Climate Risks and Insurance:

AXA: The AXA Future Risks Report, which surveyed almost 3,500 risk experts from 50 countries, ranks climate change as the #1 insurance industry risk: “Everyone, everywhere, is worried about climate change. This year, for the first time, it occupied the top spot for both experts and the general public in every single region we surveyed.”

Capgemini: “Insurers need to fundamentally change business models to achieve climate resiliency.” Capgemini and Efma’s World Property and Casualty Insurance Report highlights that “insurers focused on building climate-resilient business models will be better positioned to generate deeper customer trust while boosting their relevance and profitability.”

Aon: “With climate change-related weather events growing in frequency and severity, insurance is critical for protecting businesses, governments, and communities.” “The insurance industry can help the economy transition to alternative energy sources and mitigate the impacts of climate change — from facilitating capital for clean technologies to protecting people and businesses.”

Swiss Re: “The effects of climate change … are already evident and are changing our risk landscape. A most urgent question we need to ask is not only how the insurance industry tackles climate change, but also how we can best adapt to a changing climate and build societal resilience against damaging natural catastrophes.”

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