Insurers grapple with rising climate catastrophes

As climate change continues to exacerbate the occurrence of catastrophic events, concern has continued to grow for insurers and insureds alike. In a recent survey by Gallagher Bassett, as part of the Carrier Perspective: 2024 Claims Insights report, 76% of insurers globally highlighted this consensus within the industry.

Increased catastrophic events in the UK

In the UK, there is a notable increase in this sentiment, with 83% of insurers recognising a significant rise in catastrophic events. The country saw 10 destructive storms between September 2023 to January 2024.

“The ongoing increase in the frequency and severity of floods, freezes, and storms has created an uptick in both the volume and complexity of claims, placing heightened financial burdens on insurers,” said Ashley Easen, director of risk and ESG at Gallagher Bassett.

Financial impact of natural catastrophes

In 2023, there were approximately GBP 27 billion insured loss events, a yearly high, including GBP 16 billion insured loss events from severe convective storms. The global economic cost of all-natural calamities of 2023 sits at GBP 283 billion. This marks the eighth consecutive year that losses have exceeded GBP 237 billion, according to the annual Natural Catastrophe and Climate report by Gallagher Re.

“With escalating concerns surrounding climate change and natural catastrophes, insurers are increasingly acknowledging the need to integrate environmental variables and harness advanced data analytics,” said Ashley.

Embracing data analytics

“This involves studying historical weather patterns and incorporating predictive modelling to determine future premium changes, insurable areas, and complex customer hubs.” she went on.

On a global scale, 67% of insurers assert a moderate to heavy dependence on data analytics. In the UK, this figure is slightly higher, with 70% of insurers indicating a moderate to heavy reliance on data analytics for their risk assessment and underwriting functions.

Demand for climate-specific insurance

Despite the growing significance of climate change, only 46% of insurers worldwide report observing any uptick in policyholder demand for climate-specific insurance products or coverage options.

“Considering the impact of natural catastrophes, we expect this number to increase, and it is likely to become increasingly crucial for insurers to initiate early preparations,” Ashley commented.

The role of ESG in insurance

The integration of ESG considerations has emerged as a pivotal strategic initiative for companies to take. There is a spotlight on sustainability through reducing carbon footprint, using renewable energy, or offering sustainable products.

In the UK, 69% of insurers have increased their focus on ESG and are taking vital steps like developing a clear ESG strategy and creating an ESG task force.

“Formulating a successful ESG plan requires leveraging technology and analytics, enhancing employee training, and fostering awareness, all of which requires transparency,” said Ashley.

“It is important for insurers to keep up with emerging regulations and ensure strict adherence to compliance. Collaboration with regulatory bodies and industry peers is crucial for addressing shared ESG challenges within the insurance sector.”

Preparing for the future

To effectively address the increasing impact and risk of climate change and catastrophic events, insurers need to initiate early preparations, keep up with emerging regulations, and prioritise transparency with their clients and employees.

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Emma Cockings Emma is a content editor for Claims Media. Emma is a experienced writer with a background in client-centric personal injury for a major firm. She has attended and reported on multiple brokerage events throughout her career.