Examining the impact of environmental risks on the insurance industry

Natural catastrophes have increased in both frequency and intensity across the country. The result has been a greater threat from wildfires, hurricanes, flooding and extreme weather year-round.

Verisk Maplecroft’s Environmental Risk Outlook examines the expanding risks associated with these events and their impact on the insurance industry. The long-term effect will be global, affecting not only the U.S. economy but those in Japan, China, the U.K., Germany and other countries.

In the latest Insurance Speak podcast, Will Nichols, who heads Verisk Maplecroft’s global environmental and climate change research team, and Bill Churney, president of AIR Worldwide and responsible for setting global strategy and overseeing the company’s worldwide operations, discuss the risk outlook report, some of its findings and their impact on the insurance industry. Both AIR and Verisk Maplecroft are owned by Verisk.

The report looked at a host of environmental risks and Nichols says that while they have big impacts on most business sectors, the primary impact will be on the insurance industry. “We are looking at risks at the city level in 600 cities around the globe,” he explains. “Jakarta was the worst with serious issues with air pollution and flooding…China has 13 of the top 100 cities at risk and that level of risk is driven by air and water pollution.” He stresses that cities choosing to ignore these risks now will suffer long-term impacts in the future.

Churney cautions that “cities should not consider themselves at low risk for weather-related events.” He advises insurers to price risk appropriately, especially since cities are seeing more development and movement into more high-impact areas. “Insurers have to make sure they are pricing the risk for today’s climate, but we need to update our models frequently to take these risks into account.”

Policyholder education plays a key role in reducing the impact of environmental risks. “Helping policyholders understand risks before they buy a house helps them to better understand mitigation efforts and costs,” says Churney.

For more on the environmental risks affecting the insurance industry around the globe, listen to the podcast via the link above or subscribe to Insurance Speak on Spotify, Apple Music, Google Play or Libsyn.

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