Climate change is here – and no one is immune
Climate change is here.
Over the past few months alone we have seen catastrophic flooding in central Europe. Record-breaking temperatures in the US and Canada have triggered major wildfires. And the Atlantic Hurricane season – which had a “record-setting start” − continues to ravage with no signs of abating.
We are no longer talking about some future threat − our warming planet is already driving increasingly frequent and severe natural catastrophes (Nat Cats). It is currently costing the global economy billions of dollars, in addition to the economic impacts of the COVID-pandemic. It is creating risks, disruption and costs for businesses. And, most significantly, lives have been lost.
The recent report by the UN’s Intergovernmental Panel on Climate Change (IPCC) confirms that human actions have driven up global surface temperatures, which since 1970 have risen faster than in any other 50-year period in the past 2,000 years.
The report also details how our emissions have caused changes that are irreversible for centuries to millennia.
At the same time, we must take immediate action if we are to avoid the worst-case scenarios presented by extreme temperature rises.
Climate change is already costing us
It’s true that some people, industries and countries are going to feel the effects of climate change sooner and more harshly than others. But no one is immune to its effects. We estimate 2020 was the fifth-costliest year on record in terms of catastrophic losses. And many of these losses are down to increasingly frequent secondary peril events – such as severe convective thunderstorms, which occur almost globally.
One of the first steps we must take to shift our current trajectory and adapt to a changed climate is to acknowledge the risks we have baked in – we can no longer stick our heads in the sand.
Better preparing businesses and society as a whole, and making sure we all understand the severity of the threat we face, is a key part of improving climate change resilience.
Around the world, much of our infrastructure is underdeveloped or old and will struggle to cope with the new stressors that climate change will throw at it. Hurricane Ida in the US is a very recent and visible example of this: crippling the power grid in Louisiana and leading to catastrophic infrastructure failures in New York and New Jersey with flooded subways, submerged roads and airports shut down. The costs from Ida are expected to be in the billions, and too many lives were lost.
Doing business in a riskier world
Meeting the challenge of climate change requires risk managers to have a perspective across both physical and financial exposure. For example, following Hurricanes Maria and Irma, a number of hospitality businesses suffered not because their buildings themselves had physical damage, but because broader damage to the area meant tourists were put off coming, leaving their balance sheets exposed.
At Swiss Re, we are seeing increasing interest in parametric insurance products, which are much quicker and easier to settle than traditional risk transfer products.
For example, we settled a parametric hail claim within 14 days for two clients in the Colorado Springs area. We also provide parametric earthquake cover to the State of Utah, which, while not as seismically active as California, experiences approximately 700 earthquakes a year. When it was hit by a Mw 5.7 earthquake, the strongest in nearly 30 years, in March 2020, we were able to settle the claim and provide the funds due to the state within 30 days.
Responding to an evolving threat
Data is a great ally to businesses when looking to better understand risk and assess exposures to natural hazards. Our CatNet® tool uses vast amounts of data coupled with AI to do exactly this, helping businesses understand the threats they face in each location. And, in future, other data and tech-enabled solutions − such as digital twins − will be a vital tool in stress testing resilience across supply chains.
Data will also help us understand the impact of our actions as businesses seek to decarbonise. We will all need to find new ways of working to avoid the worst impacts of climate change.
The race to zero emissions
At Swiss Re, we are playing our part in cutting carbon emissions, including aiming for net-zero emissions in our own operations by 2030 and across our underwriting and investment portfolio by 2050. We have also partnered with carbon dioxide air capture technology specialist Climeworks, signing the world’s first 10-year carbon removal purchase agreement.
But we must accept that climate change is the unwanted business partner that is here to stay.
As Nat Cat events become more severe and frequent, businesses must work to better understand their risk exposure − and take actions now to avoid the worst impacts on their operations.
Download our latest 'Innovating Together' publication which provides a collection of case studies that show how corporates are using parametric insurance solutions and other Innovative Risk Covers to build resilience beyond traditional insurance solutions.