As climate risk looms over insurers, the challenges surrounding its identification, quantification, and management remain significant. Insurers have to make decisions today on pricing, product, guarantee terms, geography and market segment, that may incorporate a future quite different from past experience.

Non-life insurance is annually renewable right and protected by reinsurance? Where’s the risk there?

• In some scenarios, future reinsurance pricing and capacity may pose real risks to business viability of some markets.
• Bancassurers will face pressure to keep insuring properties backing long-term home loans. Although the average term is usually only around 7 years, properties experience negative impacts from climate change may be more difficult to sell, pushing out those loan terms to closer to 20 in some cases.
• Populist and political pressure to maintain coverage and premiums even when these no longer make actuarial sense could put overall margins under pressure.
• There are many other considerations, including greater variability in pricing and greater price pressure resulting in more “winners curse” from under-pricing, investment considerations and stranded assets, reputational risks, and possible long tailed liability risks.

Life insurance impact of catastrophes is pretty modest right?

• Climate change may have a wide-ranging impact on disease prevalence, from changes in vector ecology, to air pollution, to the effects of extreme heat and cold snaps on the body.
• For example, in the US, 25% of heat-related deaths in the United States link to cardiovascular diseases – demonstrating that an increase in in mortality from higher average and extreme temperatures may affect different classes of underwritten lives differently.
• PTSD from natural catastrophes could result in greater disability claims.
• Rainfall changes can place pressure on provision of safe water driving disease and increased mortality. South Africa has enough problems here without longer term climate impacts (then Cape Town, now Johannesburg and Durban, possibly always Gqeberha?)
• Economic growth is correlated with mortality (a fact mis-used in recent years, but nevertheless with some basis). Transition & adaptation present opportunities for economic growth, but plenty of risk of decline too. Changing agricultural viability and resultant migrations will more likely reduce productivity, at least in the medium term.
• There are so many other possibilities already identified, and more only our children will discover.

The impact of climate change for life insurance is uncertain, but with whole of life premium guarantees and margins already under pressure, it doesn’t take much to drive products from profitable to loss making.

We need to manage uncertainty and understand the future – and that includes climate change.