Global action to combat climate change is essential to avoid the exposure becoming systemic in nature, which might cause it to become less insurable, according to Munich Re’s CEO of Reinsurance, Torsten Jeworrek.
Speaking during a media briefing held as a virtual replacement for the Monte Carlo Rendez-Vous event, which was cancelled for 2020 due to the coronavirus pandemic, Jeworrek highlighted the fear that climate risk becomes less manageable by the traditional insurance and reinsurance industry.
Climate change is driving increasing losses to the insurance and reinsurance industry in recent years, not least through the escalating losses from so-called secondary perils.
According to Munich Re’s data, weather-related natural catastrophes have been responsible for around US $4.2 trillion in losses and have cost the lives of almost a million people since 1980, with only around a third of the losses insured.
That enormous figures doesn’t event include the knock-on effects of climate and weather risks, such as breakdown of supply chains, banks experiencing a surge in loan defaults, or power plants having to scale back production during a heatwave, the reinsurance firm said.
Jeworrek warned that we may not be giving sufficient credence to the threats of climate change.
Putting it into perspective he said, “If we don’t take action, climate risk could be much worse and more difficult than the pandemic.”
He explained that as climate risks worsen and climate change continues unabated, we could see it becoming categorised as a risk that is systemic in nature and as a result less able to be insured.
“So far, climate change has not been a systemic risk, but it will be if global warming continues unabated. Certain regions will no longer be arable in a few generations’ time. The loss probabilities of certain natural hazards are on the rise, and we are already seeing this with severe thunderstorms and forest fires,” Jeworrek said.
Speaking during the media briefing, Jeworrek said that climate change is of a different category of risks to the Covid-19 pandemic, which means we do not perceive the risk in the same way.
Calling for global climate change action, Jeworrek said, “The clock is ticking, if we don’t take action now, we run into a situation where the consequences are severe and can’t be reversed easily in a short period of time.
“When we want to tackle the problem, we have to act as a community on this planet.”
If climate change and climate risk becomes systemic the insurance and reinsurance industry alone may not be able to cover it and assistance from governments and public entities may be required.
“We must draw the right conclusions from this and make better preparations in order to minimise losses. As a company, we are doing our share by analysing and helping to understand risks with the expertise we have at our disposal, and we are absorbing part of these with suitable insurance solutions,” Jeworrek explained.
Munich Re called climate change “humanity’s greatest challenge as it has a long-term impact and cannot be reversed for generations,” yesterday.
Strong words such as these are required to make policymakers take note and the time to respond to the threat with resilience and mitigation measures, assisted by the wealth of risk transfer capacity from traditional and capital markets, may be running out.