Simon Axon, financial services industry director, international at Teradata.
Simon Axon, financial services industry director, international at Weather and climate disasters, such as the horrific firestorm in Hawaii, the extreme heatwave and drought in Europe, and Hurricane Ian in the Caribbean and US, have dramatically reinforced the impacts of climate change. Such events are only becoming more frequent and severe, leading to a significant increase in the number and value of insurance claims.
In fact, research from Capgemini and Qorus revealed that insured losses from natural catastrophes have increased 250 percent in the last 30 years.
McKinsey predicted that the value at stake from climate-induced hazards could, conservatively, increase from about 2 percent of global GDP to more than 4 percent by 2050. The risks include not only acute events like wildfires, floods, and storms, but also more chronic issues such as droughts and rising mean temperatures, which directly impact food production, productivity, operating costs, and more. For example, figures from the Association of British Insurers (ABI) revealed that £219 million was paid out in the UK just for subsidence claims related to the record-breaking heatwave in 2022.
A crisis of confidence in prediction models
It is not only the balance sheets of insurers that are threatened by the increasing cost and frequency of climate-related claims. It is the sector’s entire business model that is at risk. There is a growing realisation among experts that climate volatility is undermining the foundations of an industry that relies on historical data to predict risk. Eric Andersen, the president of Aon, the world’s largest insurance business, told a US Senate committee that climate change is creating uncertainty in the industry and leading to “a crisis of confidence around the ability to predict loss.”
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