Climate change is arguably the biggest challenge facing humanity today. For insurers, it also presents an array of new uncertainties that make pricing risk harder than ever.
Our report discusses how shifting global weather patterns have already led to an increase in the frequency and severity of extreme weather events. From 2017- 2018, the combined global losses from natural disasters was $219 billion. Even shifts in milder weather patterns – such as reduced (or increased) rainfall impacting agricultural output – can have a significant impact on business and society, increasing demand for insurance to mitigate the impact.
But the unknowns about exactly how the climate is changing and what impact this may have are making it harder for insurers to project claims into the future and estimate the risks they may be facing when underwriting a policy. How can you estimate the impact of natural catastrophes next year when the data you have for the last decade is not representative of that future risk?
This is a challenge that insurers are working hard to overcome, but it will take time for them to grapple with the complexities. The first to break through and understand complex climate-related risks in ways others can’t – likely via a combination of real-time data and Artificial Intelligence-led analytics – will gain a significant competitive advantage.
In the meantime, many insurers are already finding success in driving down the cost of claims by delivering better risk mitigation services when their policyholders are faced with real-life claims events.
Continuous real-time data can allow insurers to warn their policyholders of approaching natural disasters, whether that be hurricanes, forest fires or possible flood risks.
And the rise in the popularity of connected devices such as home assistants, smartwatches and smartphones has made this job even easier for insurers to get these messages out quickly and in the most efficient way. This grants policyholders more time to put mitigative measures in place, whether that is placing sandbags to help prevent a flood or evacuating an area if the risk to life is high.
While there are obvious benefits here for policyholders, the business case for insurers is also clear, as any mitigative measures that can be deployed should also help reduce the cost of claims – and so boost insurer profits.
This presents huge opportunities for insurers to think and act differently and so meet the needs of a whole new market of customers. These are the underserved and dissatisfied: those who are looking for something different from their insurer – whether that be new products, new services or a new experience.
And ultimately this is what the next wave of insurance is all about – insurers using technology, real-time insight and deeper customer engagement not only to improve their own financial performance, but to improve the lives of their customers, and the resilience of society and the planet as a whole.