Climate risks will add $ 183 billion to property insurance costs by 2040, Swiss Re predicts
Climate risks are expected to add up to $ 183 billion to annual property insurance premiums by 2040, as the increasing frequency and severity of extreme weather conditions push insurers to raise prices.
The Swiss Re Institute, the reinsurance group’s research unit, has predicted that climate-related risks will account for just over a fifth of the overall rise in real estate premiums over the next two decades.
Factors categorized as “economic development”, including inflation and growth in insured assets, are expected to account for three-quarters of the increase, contributing up to $ 616 billion in additional premiums to what the institute expects become a $ 1.3 billion market.
Forest fires, winter storms and flooding made 2021 costly for the industry, which had its worst start to the year for natural disaster insurance in a decade – and that was before the floods in Europe in July and the devastation caused by Hurricane Ida in the United States of late. weeks.
Jerome Haegeli, chief economist of the Swiss Re group, believes that climate change is the “number one” risk for the global economy.
The insurance industry has the capacity and expertise to deal with the risks, he said, but stressed that the forecast of losses and claims assumed the world had met the goal of keeping the rise. global temperatures 1.5 ° C above pre-industrial levels.
“If we were in a more serious scenario, you would talk about much higher economic losses, then the question would be, of course, what is the price to pay [put on that by insurers], “he added.” Is it still affordable and is the insurance industry still up for it? “
Swiss Re said that in some important markets, including China, the UK and France, weather-related disaster losses could double by 2040 due to climate risks.
Forecasts show how the general property and casualty insurance market is likely to change.
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Property insurance is expected to drop from a 25% share of total P&C premiums in 2020 to 29% by 2040. Auto insurance, meanwhile, is expected to drop from 42% to 32% during this period. , as a result of “safety improvements through automation and intelligent technology,” said Swiss Re.
Policy makers are increasingly focusing on how insurers will respond to climate change. Last month, the Federal Insurance Office of the US Treasury published a request for information on climate-related risks for the sector. “There is growing evidence that climate change may be associated with a decline in the availability and affordability of insurance provided by the private sector. . . in some markets, ”he said.
The FIO said it would assess the potential for “major disruptions” in some insurance markets due to climate change and that it “would examine the insurability of disasters produced or exacerbated by climate change, including fires in forest, hurricanes, floods, wind damage and extreme events. temperatures ”.