Climate change will add $183 billion to annual premiums for property insurance by 2040, according to research by the reinsurance group, Swiss Re Institute.
Global warming is causing frequent and severe weather storms, leading to a rise in insurance premiums for buildings and properties. The reinsurance group’s research says that climate-related risks would account for just over a fifth of the overall rise in property premiums over the next two decades.
Long-term plans for global warming need a quick push
This rise will reinforce long-term shifts driven by urbanization and rising wealth in emerging economies, the company said in a report for the annual Rendezvous September reinsurance industry gathering in Zurich.
Factors categorized as “economic development”, including inflation and growth in insured assets, will contribute as much as an extra $616 billion of premiums to what the institute expects will become a $1.3 trillion market.
The recent wildfires, storms, and floods all over Europe and America have made the past one year a costly one for the insurance sector.
Jerome Haegeli, Swiss Re’s group chief economist, believes the changing climate is the “number one” risk to the global economy. He said that the insurance sector was equipped to deal with the rising costs but added that forecasts for losses and claims were based on the world meeting the target of keeping the global temperature to 1.5 C above the pre-industrial level. “If we were in a more severe scenario, then you would talk about much higher economic losses, and then the question would be, obviously, what is the price tag [put on that by insurers],” he added. “Is it still affordable, and is the insurance industry still willing to do it?”
Swiss Re said that property markets in China, the UK, and France, could be affected by weather-related losses in the next two decades.
Property insurance is expected to rise from a 25 per cent share of total property and casualty premiums in 2020 to up to 29 per cent by 2040.
With more people living in cities and growing wealth in emerging economies, more homes, rail lines, power stations and other critical infrastructure will need protection. Property premiums stood at around $450 billion in 2020.
Motor insurance, meanwhile, was expected to fall from 42 to 32 per cent over that time, as a result of “safety improvements from automation and smart technology”, Swiss Re said. On the one hand, rising wealth in emerging economies will see more people able to buy vehicles, but the improvement in mobility technology will see e-scooters, e-bikes and pooled ownership reduce demand for insurance.
Motor insurance premiums are expected to double to around $1.4 trillion, from $766 billion in 2020.
Last month, the US Treasury’s Federal Insurance Office published a request for information on climate-related risks to the sector. “Growing evidence indicates that climate change may be associated with a decline in the availability and affordability of insurance provided by the private sector . . . in certain markets,” it said. The FIO said it would assess the potential for “major disruptions” in the insurance markets due to climate change, and would “examine the insurability of disasters that are produced or exacerbated by climate change, including wildfires, hurricanes, floods, wind damage and extreme temperatures”.
