Climate crisis now a major concern for global organizations
Businesses now face new exposures from climate change, including harsher regulations, mounting legal liabilities and reputational damage.
The escalating environmental and climate crisis poses increased risks to major cities and businesses globally. In less than 30 years, we will be forced to re-evaluate how we live and work. Businesses are already facing physical risks posed by climate change, but additional risks could include harsher regulations and mounting legal liabilities, as well as reputational damage.
Amidst these environmental risks, the insurance industry must be prepared for the challenges that will ensue. Bill Churney, president of AIR Worldwide, told PropertyCasualty360.com that insurers should make sure “they are prepared for unprecedented extremes that climate change may bring or influence in the near and not-so-near future,” adding that they should also “understand how the catastrophe models they use are built and how they are accounting for climate change.”
A study conducted by Verisk Maplecroft explored the key challenges for businesses and how governments, investors and corporates can manage these growing risks. Some of the study’s key findings include:
- Declining air quality, natural hazards and water availability are expected to be multiplied by climate change.
- If emissions continue to rise at their current pace, major cities could see sweltering temperatures and severe heatwaves. The result, severe heat stress, could trigger confusion, dizziness, fatigue, nausea and even death. The agriculture, manufacturing, and other outdoor industries will suffer, resulting in widespread productivity losses, skyrocketing cooling costs, and heat-related diseases.
“Increased heat, humidity, and heavy flooding rains may all contribute to climate change-related impacts on human health. Increased frequency and intensity of heatwaves, particularly in urban locations that don’t have appropriate infrastructure… may lead to increased emergency room visits and lost wages,” said Churney. He noted that this could lead to an increase in insurance premiums but not before the data and the proof that ties incidents to climate change become stronger. “Some of these more ‘chronic’ impacts from climate change is an area where Verisk is investing resources,” he added.
Lawsuit risk rises
Climate mitigation risks are also great in undeveloped markets. Over the past two decades, climate lawsuits have been filed in 52 countries across North and South America, Europe, Asia Pacific and Africa. The U.S. and EU account for 90% of climate-related lawsuits globally since 2000.
“It’s definitely making insurers aware of who they insure and the potential for liability claims,” commented Churney. “It is not enough just to focus on the physical risk from climate change.” He added that several of the world’s leading insurance and reinsurance companies have formed an alliance to help speed transition to a net-zero emissions economy and will be shifting underwriting portfolios towards net-zero greenhouse gas emissions by 2050. He said the insurance industry should have an advantage relative to other industries because they already collect extensive information on the risks they underwrite, so if they apply an ESG lens, it would just be an extension of current processes.
Mitigating climate-related threats
Projections are that by 2050, 350 million people in the world’s megacities will be impacted by heat stress. The significant stress on health care facilities, disruptions to transport and power grids, and reduction in GDP as productivity and outputs fall will pose particular risks for the U.S.’s nearly 8 million construction workers and 13 million manufacturing employees.
The Verisk report recommends that real estate investors and government officials pay keen attention to the dangers lurking ahead and act quickly to identify those risks and factor them into decision-making to help mitigate the impacts.
Churney said one way to mitigate the risk is “to become more resilient — making buildings more windproof, waterproof, and fireproof.” He added that “insurance companies can play a role by providing incentives such as reduced premiums for clients taking those kinds of steps.”
Trudy Knockless is an award-winning freelance reporter, writer, editor, author, and online talk show host with a background serving legal and insurance publications. Born and raised in Jamaica, Trudy currently resides in New York with her daughter and mother and hosts an online program titled “Conversations with Trudy,” which streams live on Facebook every Wednesday at 8 p.m. EST and also airs on Newstalk 93 FM in Jamaica and Caribbean Vibes Radio in New York. The program aims to break stigmas, offer perspectives on taboo subjects and provide a safe space for open dialogue for participants and viewers.
Related stories: