Climate proofing and climate adaptation are becoming hot topics and receiving more coverage in recent weeks as countries begin to explain their plans for adapting and climate proofing the built and natural environment to combat the effects of climate change. In the UK, government departments have been unveiling plans to upgrade roads, move fish to alternative waters and shore up lighthouses. These are essential steps but one thing seems to be missing from those plans and that is risk transfer.
It is essential that society is ready, prepared and able to adapt as the climate changes, temperatures rise and fall, precipitation increases and storms become more intense. Reports are predicting increasing costs to society from climate change (although some countries may realise a net benefit according to studies) as disasters increase in frequency and severity. Society has had to adapt to a fluctuating climate for thousands of years and it is now more complex and difficult than ever to try to ensure that as the climate fluctuates society can keep functioning as normal.
Some are predicting that the effort put in to achieve climate adaptation and proofing will be beneficial to the economy as it drives new sectors growth and innovation in engineering.
It is concerning though that there is so much effort being put into these climate adaptation and climate proofing plans but there seems to be little reporting or mention of the role that re/insurance and risk transfer has to play.
It will be more important than ever to ensure that adequate re/insurance cover is in place as the climate changes. As we know, the alternative risk transfer and weather risk management sectors have many tools which can be used to help combat and protect society from the impacts of the climate. It’s essential that the risk transfer industry plays a leading role in any climate adaptation planning. As new ideas are proposed and invented to help society change the way it operates in order to achieve climate adaptation new forms of risk transfer will be required to cover those efforts and hedge the risks of the climate impact.
It’s worth also considering the role that the investment and hedge fund sector could play in climate adaptation. Already risks are being packaged as investment opportunities and climate bonds are being created. Perhaps the investment sector could help the government finance climate adaptation through climate risk securitization?
Re/insurers and the risk transfer community are already playing a leading role in the area of climate risk mitigation, it’s time that role was expanded to include involvement in the ongoing climate adaptation talks (as various re/insurer groups requested in September last year).