10 December 2024

Commercial Risk: Climate change cost insurers $600bn over past two decades, says campaign group

The insurance industry is fundamentally underestimating the impact of climate change, with more than a third of insured weather losses attributable to climate change over the past two decades, according to a report from climate campaigners Insure Our Future.

The group’s eighth annual scorecard report finds that climate change caused an estimated $600bn of global insured weather losses between 2002 and 2022, or $30bn each year on average. In 2022, $52bn out of $132bn of insured losses were climate-attributed, according to the study, which applied peer-reviewed climate attribution science to industry loss data from Aon, Gallagher Re, Munich Re, Swiss Re and Verisk.

Risalat Khan, senior strategist at Insure Our Future, said climate change is accounting for a larger and larger share of industry weather losses over time. Climate-attributed losses have risen from 31% to 38% of total insured weather losses over the past decade, while the 6.5% annual growth in climate change attributable losses has outpaced 4.9% growth in insured losses, according to Insure Our Future.

Khan said the research findings into climate attributable losses are in “stark difference” to the position of insurers, including climate-forward conscious firms. He noted that when giving evidence statements to Australian government inquiries, Swiss Re said climate change plays a relatively small role today in losses, while Allianz says it has not been possible to identify that climate change is directly contributing to weather-related losses.

Insurers point to various drivers behind the increased trend in natural catastrophe losses, including higher values, urbanisation, and higher populations and economic activity in catastrophe-exposed regions. According to Khan, climate change attributable losses are in addition to these exposure trends.

“Insurers are fundamentally misunderstanding climate risk by failing to recognise how greenhouse gas emissions have driven up losses throughout this century. Unless we cut emissions sharply this decade, climate damages will grow exponentially and could overwhelm both insurers and economies,” says Professor Ilan Noy, climate attribution economist at Te Herenga Waka — Victoria University of Wellington, and contributor to the report.

“Lloyd’s and Swiss Re’s framing of the drivers behind rising insured losses show a fundamental misunderstanding of causality, and what climate attribution science has identified in the past 15 years. The impact of climate change is not just a present and future problem – it has already been driving up risks and causing major losses throughout this century. Financial regulators should ensure that independent climate science informs their view of the true costs and risks of the climate crisis – before they overwhelm insurers and economies,” says Noy in the report....

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