Climate change, the economy and the important role of the insurance industry.

As leaders from around the world gather in Davos in 2023, the issue of climate change will be at the forefront of discussions. UN Secretary-General Antonio Guterres has emphasized the urgency of the matter, stating that climate change is the greatest challenge of our time. The world economy is also being impacted by climate change, with the increased frequency and severity of natural disasters causing significant damage to infrastructure and property, leading to economic disruption and the loss of jobs.

No other sector understands this like the insurance sector. The insurance industry is highly vulnerable to the effects of climate change. Rising sea levels, extreme weather events, and an increased frequency of natural disasters all pose significant risks to insurers.?

Additionally, insurers are dealing with an increase in the number of claims for damage brought on by natural disasters as well as an increase in the price of underwriting policies for homes and businesses situated in high-risk regions. The insurance industry, both as risk underwriters and as significant institutional investors, plays a crucial role in addressing this challenge as a result of the acute awareness and economic impact on profitability and business model sustainability.

The fight against climate change is at a critical juncture for the industry. It is obvious that the insurance sector, both as risk underwriters and as large institutional investors, has a crucial role to play in addressing the challenges posed by a warming planet as the world convenes in Davos in 2023 to discuss the pressing issues of our time.

Global insured losses from natural catastrophes in the first half of last year reached a staggering $35 billion, 22% above the average of the past ten years. This trend is only set to continue, as a 2022 study by Swiss Re, a re-insurer, found that economic losses from climate-related natural disasters are growing by 5 to 7% per year.

Insurance companies are in a unique position

Considering that they are both risk underwriters, significant institutional investors, and corporate philanthropists, insurance companies are in a unique position to address the problems of climate change. They have the capacity to not only financially shield people and communities from the effects of climate change, but also to fund initiatives and projects that lessen its effects.

To mitigate these effects and protect their businesses, it is essential for the insurance industry to work with governments, other businesses and sectors, and individuals to take action now.?

So what can the industry do now? How could it lead? Here are some thoughts.

• Let’s start building solutions. Let’s stop gathering to talk and start gathering to build. Davos should start a tech conference the following week where concerns can move to usable ideas. The tech sector is under economic pressure in a recession and they are shedding great talented minds, how about the financial and insurance industries build centre of excellence accelerator in Canada and put those great minds to work!
• Let’s start investing more in renewable energy. Let's start investing in renewable energy, reducing carbon emissions, and increasing resilience and preparedness for natural disasters. This action can help to protect the economy, finance, and insurance industries from the devastating consequences of climate change. Maybe insurance companies can give deep discounts to tech clean tech adoption for both industries and consumers.?
• Let’s boost “catalytic philanthropy”. Only 2%, (between $US 7.5-12.5 billion) of global philanthropy goes towards climate action but there is fast-growing philanthropic interest to use their tools to help corporations and governments. Let's better harness the power of catalytic philanthropy to close the $100 trillion gap for equitable climate and nature solutions by 2050. Perhaps some of the CSR money the industry has could be pointed toward Catalytic Philanthropy. Perhaps the insurance industry or large players could direct their CSR to climate organizations making an impact in our communities now! Here is a good candidate, Coastal Restoration Society is a non-profit organization supporting the environmental remediation goals of First Nations, provincial, and federal government agencies.

Climate change leadership is good business.?

Insurance companies that engage in activities that help mitigate climate change and promote sustainable development goals will have a competitive advantage with socially responsible investors. These leading insurance companies understand that by engaging in activities that help combat climate change, they will have a competitive advantage with investors who are becoming more and more aware of the need for action on this issue.

In Davos 2023, the insurance industry has the opportunity to take a leadership position and to come together with government leaders, business leaders, thought leaders, and tech leaders to forge partnerships that will allow us to effectively address the challenges posed by climate change.?

By working together and leveraging their unique position, the insurance industry can play a key role in the fight to protect our planet and secure a sustainable future for all.