Climate Risk: A Growing Threat For Insurance
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Climate change as a risk
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Climate change risk and insurance
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Impact indicators to track your portfolio’s risk
Wildfires rage in California, while drought devastates the Middle East, and floods thunder through many southern coastal states in the U.S. The repercussions of these natural disasters and climatic events are massive. Hurricane Harvey, which ripped through Texas and Louisiana in the fall of 2017, caused over $125 billion in damage. The 2018 wildfires in California? Over $102 billion. Damages born by natural disasters have only continued to increase as climate change continues to increase the severity of storms and droughts alike. 2020 was a record year for wildfires, totaling 58,950 and costing the taking 4.2 million acres of land in California alone. As of Feb 4, 2022, 2,388 fires have already burned a total of 40,822 acres which is well above the 10-year average.
Climate Change as Risk
Traditional risk indicators have long included metrics such as alpha, beta, and other statistical calculations that don’t quite capture the very real vulnerabilities and risks associated with investments, purchases, and the human experience at large. In the past, risk has been calculated as a product of the likelihood of exposure to something undesired. Climate change, however, is new to this model and is becoming more prevalent in the insurance and risk management space. Integrating climate change considerations into risk management acknowledges that the effects of climate change, or the exposure to it, can lead to destruction. From infrastructure to investments to even human life, climate change poses a risk that can no longer be ignored.
Climate Change Risk and Insurance
It is projected that the risk of climate change will only increase over the long run, possibly catalyzing economic damages equivalent to, or greater than, that of the 2008 financial crisis. In the wake of such projections, insurance companies are beginning to integrate climate change into risk assessments and insurance policies more than ever. No longer can the threat of natural disasters or rising sea levels be sidelined for the sake of coastal building development or investments in real estate properties in high-risk areas. These properties are losing protection if being insured at all.
Impact Indicators To Track Your Portfolio’s Risk
At Physis, our platform is built around the impact of your portfolio. With over 700 impact indicators, we work with our institutional clients to empower asset managers, banks, and financial advisors to track, measure, and understand the impact of their investments. Together with traditional risk metrics, these indicators are at the forefront of investment and insurance strategy, creating a toolset to ensure a safer, stronger, more sustainable tomorrow. Join us.
Sources
Flood Insurance in a World with Rising Seas
How insurance companies can prepare for risk from climate change
Climate Change Poses Major Risk to Financial Markets, Regulator Warns