Doe-eyed Swedish teenager Greta Thunberg captured the world's attention during the last year with her straightforward message about the dangers of global warming: "This is the biggest crisis humanity has ever faced... This is not something you can 'like' on Facebook!" Yet there remain those who dismiss her argument as politically motivated pessimism. The climate has always been changing, such skeptics argue. Haven't you ever heard of the Ice Age? A version of this climate change cynicism was signaled by the 45^th President of the United States during his January comments at the 2020 World Economic Forum in Davos. While simultaneously announcing that the U.S. will join the Trillion Trees Initiative, a United Nations response to global warming, President Donald Trump labeled climate-change activists "the perennial prophets of doom." He continued: "These alarmists always demand the same thing: Absolute power to dominate, transform and control every aspect of our lives." |

What's the alternative?

For many leaders in insurance and risk management, it doesn't take splashy cover stories, government declarations or even Thunberg's regular Skolstrejk för Klimatet (School Strike for the Climate) to be convinced that there's a problem with extreme weather — a problem that's escalated at the same time that the planet is warming up due to human-generated greenhouse gases. These voices argue that the time is now for the insurance industry to work toward reversing the effects of global warming with the goal of curtailing losses due to extreme weather. (Incidentally, global warming is the leading scientific theory to explain the increased severity and frequency of natural disasters.)

Insurance industry players need only look at the increased losses and costs linked to devastating wildfires, tornadoes, typhoons, hurricanes, flooding and hailstorms to recognize a trend that not only threatens the health of their business but of all of humanity. "It's not enough to say we have a problem," Veronica Scotti, chairperson of Public Sector Solutions at Swiss Re, said during a 2020 World Economic Forum panel discussion titled Climate Risk and Response. "We need to show what a good solution looks like, and make that solution available, fundable and sustainable." Scotti is not alone in arguing that insurers are uniquely positioned to educate and mitigate against future disasters and forge proactive, solution-oriented partnerships that not only shore up coverage gaps but also lay the foundation to begin reversing the effects of global warming. Francis Bouchard, group head of public affairs and sustainability at Zurich Insurance, is among the insurance-industry influencers calling for sector leadership in the climate crisis. "Too often, we [in insurance] have a chip on our shoulder [because] we're viewed by public stakeholders as a black hat industry," Bouchard said at the Triple I Joint Industry Forum held in New York City earlier this year. "This is our chance to play a white hat role in society in one of the most dangerous and complex risks we face, and that's climate change." It wouldn't be the first time that insurance takes the lead in combating dangerous societal risks, Bouchard added. He drew a link to Ben Franklin's volunteer firefighting "Bucket Brigade" organized in Philadelphia neighborhoods that were prone to devastating fires, and the fact that Franklin also is recognized as the founder of the first homeowners insurance company in the United States. Similarly, the Chicago Board of Underwriters pioneered the use of firetrucks and fire codes after the Fire of 1871 blazed for 36 hours, leveled more than 18,000 structures, took 300 lives, and left roughly a third of the city's residents homeless. That same organization founded Underwriters Laboratories in the late 1800s, which pioneered new product and worker safety standards necessitated by the advancement of the Industrial Revolution. And today, the Insurance Institute for Business & Home Safety (IBHS), which studies and makes recommendations around strengthening homes, businesses and communities, and the Insurance Institute for Highway Safety, which puts science behind road safety and accident mitigation, both exemplify insurance industry leadership around safety and accident mitigation. "We have the history, and we've delivered on that society role over and over again in terms of understanding that our job isn't just to transfer risk for individuals and companies but to reduce risk for societal," Bouchard said. "We are the risk elites. If we don't play that role, who's going to play it?" |

'It's gettin' hot in here'

For many in insurance, the place to start is by compiling and sharing the most accurate risk models possible, not only for developing and pricing products but also for launching location-specific mitigation efforts. Forbes magazine recently highlighted the need for such insurance-industry insight and leadership. "Where the premiums fail to reflect true risk… homeowners will continue to build in disaster-prone areas, such as along the New Jersey shore," wrote contributor Andy Stone, a former staff writer who now hosts the Energy Policy Now Podcast from the University of Pennsylvania's Kleinman Center for Energy Policy. "Here, the size and value of properties have grown with each successive post-flood rebuilding, as owners of vacation homes and supportive mayors have acted in apparent disregard of flood peril and stood aside as their risk burden has been spread among their land-locked brethren." Enter the volumes of research to arrive in recent years, from within and outside the insurance space, on the issue of climate change impact, losses, risk and resilience. Consider the "Billion-Dollar Weather and Climate Disasters" report published by the National Centers for Environmental Information (NCEI): "In 2019, there were 14 weather and climate disaster events with losses exceeding $1 billion each across the United States. These events included three flooding events, eight severe storm events, two tropical cyclone events, and one wildfire event. Overall, these events resulted in the deaths of 44 people and had significant economic effects on the areas impacted." CoreLogic also recently released its "Natural Hazard Report." Among its key findings: |

• 2019 marked the seventh year in the last decade in which 10 or more weather and climate disasters exceeded $1 billion in losses;
• Communities affected by wildfire, hurricanes, tornadoes, earthquakes and other natural disasters in 2019 could experience an increase in mortgage delinquency rates; and
• Earthquake risk in California remains as prominent as ever, with only one in six homes there having earthquake insurance.

And Aon kick-started the year with its "Weather, Climate & Catastrophe Insight 2019 Annual Report." It includes the following notable data points: |

• The direct economic losses and damage from natural disasters in 2019 were an estimated U.S. $232 billion.
• Of those losses, U.S. $71 billion were insured.

"This high amount of uninsured loss highlights the importance of making sure that people have access to insurance products in the future," Steve Bowen, the meteorologist who heads up Aon's Catastrophe Insight division, said in a video about the 80-page Annual Report, which is packed with data-enhanced maps, graphics and illustrations about 2019's major weather and disaster events worldwide. Bowen elaborated on what he sees as the opportunity for insurers during a recent call with NU Property & Casualty. "The best thing to happen over the last couple of years is, there's been a real outpouring of engagement between the insurance industry, the federal government, banks and a multitude of different sectors," he said. Industries "are starting to come together to have a pretty serious conversation about what to do moving forward" to not only mitigate losses from natural disasters but also take on the Herculean task of attempting to avoid them, he added. Bowen praised such efforts as the modernization of infrastructure — rebuilding stronger after a disaster — and the implementation of more catastrophe bonds as proactive steps that cross-sector partnerships can produce in the face of climate change. The Pacific Alliance, for example, includes representatives from Chile, Columbia, Mexico and Peru. This group worked with The World Bank to develop a cat bond in 2018 to respond to that region's growing earthquake risk. According to The World Bank: "Offering a combined U.S. $1.36 billion in earthquake cover… the cat bond attracted more than 45 investors globally, ranging from dedicated insurance-linked securities funds to pension funds to reinsurance companies, and it resulted in approximately U.S. $2.5 billion in investor orders. The high demand resulted in lower premium rates." Bowen predicts the insurance industry will be drawn into even more inter-sector partnerships to confront climate change. "I think that will be the real game-changer in terms of trying to alleviate that protection gap," he said. Tracking losses from extreme weather is one way to present a concrete argument about the need for action around climate change. But there are even more far-reaching impacts from global warming to consider. For instance, some climatologists argue that warmer temperatures and wetter environments will more easily facilitate the spread of disease, which could lead to increased pandemics. What's more, in its January 2020 "Climate Risk and Response" report, the McKinsey Global Institute pinpoints five systems that it determined are directly affected by physical climate change: |

• Livability and workability;
• Food systems;
• Physical assets;
• Infrastructure services; and
• Natural Capital.

"If you're an insurance player, whether you're a carrier or a broker, these factors could have meaningful implications on how to cover risk," Kia Javanmardian, senior partner and head of North American P&C at McKinsey & Company, said in a recent interview. "There are implications on where people choose to live and how people choose to work… Some places may be even harder to insure in the future." He added that some carriers are already pulling away from insuring coastal communities. Speaking during the 2020 World Economic Forum, Dickon Pinner, global leader of the Sustainability Practice at McKinsey & Company, said the next decade of global warming effects are basically "locked in." "Regardless of what we do, there is already a certain amount of climate change," he said. "We have to adapt, and we're underprepared." Pinner applauded such solutions as building sea walls and planting mangroves to offset inland flooding. But, "The only way to take long-term risk out of the system, is to stop putting carbon into the system," he said. |

Proactive measures

To be sure, many in insurance are already forging forward-thinking climate change solutions. "We started working with Mexico 14 years ago," Swiss Re's Veronica Scotti said in Davos. "Now it is one of the most advanced countries because they even put in their constitution that certain money needs to go into preparedness and disaster management." Mexico is where Swiss Re teamed up with The Nature Conservancy and regional governments to develop insurance to protect endangered coral reefs, which are essential for carbon capture and coastal erosion prevention. The product ensures rapid disbursement of funds to enable communities to counter reef damage following a severe storm. "This could be replicated across many other nature-based solutions," Scotti said. She added that since 2016, Swiss Re has been able to reduce the carbon footprint of its investments by 52%. Peter Sousounis is director of Climate Change Research for AIR Worldwide. He is encouraged by the development of risk pools to help some of the world's less-developed nations, which also happen to be the most exposed when it comes to extreme weather events. Consider the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company, which is headquartered in the Cayman Islands. The CCRIF is the first multi-country risk pool in the world and was the first insurance instrument to successfully develop parametric policies backed by both traditional and capital markets. These parametric policies release funds based on calamity factors such as rainfall or wind speed and can speed up the payout of policies rather than waiting for damages to be assessed. Unused funds are kept as reserves for the CCRIF. The fund also can draw upon $140 million in funds underwritten by reinsurance. Similar programs include the African Union and the Pacific Islands Forum. Now the challenge for insurance leaders is to continue educating themselves about climate change and their available tools to counter the effects of extreme weather. "Mitigation measures, strategies and products are still evolving," Sousounis said. Not to be missed is the opportunity for insurance professionals to work directly with clients to mitigate risk. "We spend as much time as possible in preparation with our customers, to make sure that we understand the changing landscape and the changing marketplace so that we can adequately respond" to disaster claims, Crawford Claim Solutions President Kent Olson said in Davos. "We make sure we have the right teams and technology in place to ensure that we're driving the best customer experience and restoring people as quickly as possible." The challenge, Olson concluded, is "constantly innovating and bringing new solutions to our customer base to drive better outcomes and modeling so that we can price products better." Related: |

• Climate change challenges insurers to think beyond risk transfer
• Insurers, financial institutions face a $1 trillion climate risk
• U.S. states with the highest uptick in natural disasters
• Commercial property insurance brokers 'take cover'