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News Topical, Digital Desk : Insurance Companies: The world's big insurance companies are afraid of the growing threat of climate change. Big companies like Allianz and Zurich Insurance Group say that if the current situation remains the same, then in the coming years the economic loss caused by natural disasters will increase so much that many areas may have to be declared 'uninsurable'.
According to Allianz board member Gunther Thalinger, the world is rapidly approaching a temperature level where insurance companies will not be able to continue to provide cover for financial services such as mortgages and investments. Thalinger stressed the need for decarbonisation (reduction of carbon emissions). He says that entire asset categories are losing their value in "real time" due to the impact of extreme weather events.
Climate change and increasing risk
The United Nations estimates that global temperatures could rise by 2.6 to 3.1 degrees Celsius by the end of this century. This level can have 'devastating' effects, such as high sea level rise, severe heat waves and large-scale flooding. Thalinger says that it will be impossible to economically 'adapt' to such conditions. He gave the example that if the sea level rises by 3 meters, it will not be possible to save a city like Amsterdam, no matter how much money is spent.
Increasing financial burden on insurance companies
According to a report by Zurich Insurance Group, over the past 30 years, the claim outgo of insurance companies has grown much faster and more than the growth of the global economy. Between 1994 and 2023, insured losses grew by an average of 5.9% (after adjusting for inflation) every year, while global GDP grew at just 2.7% annually during the same period. This means that insured losses are growing more than twice as fast as global economic growth. Zurich says that if this trend continues, the premiums for policies covering climate-related risks will have to be increased tremendously to cover the additional risk. And as the premiums become more expensive, fewer people and companies will buy insurance. This could have a bad impact on the entire insurance market. Climate-related risks and the boom of CAT bonds With the increase in extreme weather events, the catastrophe bond (CAT bond) market has seen a sharp rise. These are financial instruments that help insurance companies raise money in case of natural disasters. According to Swiss Re, the CAT bond market has grown by 75% since the end of 2020. But Allianz's Thalinger warns that the old formula of "more risk = more business" may now fall apart, because if losses continue to mount, it will not be financially sustainable for insurance and reinsurance companies. Premiums likely to get expensive Steve Evans of specialist data provider Artemis.bm says, "If safety measures are not adopted in high-risk areas, the cost of insurance will keep rising there. This can become a dangerous cycle, where losses will increase, premiums will rise, and eventually it will become impossible for many people to take insurance.
Munich Re's Chief Climate Scientist Tobias Grimm believes that the world will not be completely 'uninsurable', but cost (premium) will definitely become an important issue. He says that companies are still ready to provide insurance if the premium is commensurate with the risk. According to Grimm, the real problem is that people are still developing property in high-risk areas, such as luxurious homes built near the forests of California, which are the first to burn in wildfires. To solve this, Grimm suggested measures like loss prevention and land use management.
Overall, if climate change continues at the current pace, the losses to insurance companies may skyrocket. As a result, premiums will become expensive and the number of people taking insurance will decrease. This trend is a danger signal not only for the insurance industry but for the entire global economy.
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