Climate change number-one risk for insurers globally, AXA report reveals
Just 14% of insurers said governments were prepared for climate risk, down from 19% last year.
Climate change is now the number-one risk for a major institutional investor group – insurers – across America, Europe, the Middle East, Asia Pacific and Africa, according to AXA Group’s ninth annual Future Risks Report.
Coming in ahead of geopolitical tensions in the same year Russia invaded Ukraine, the report, which primarily analyses the responses of underwriting and risk management professionals globally, reveals a sharp decline in trust in public authorities to address the climate crisis.
Just 14% of insurers said governments were prepared for climate risk, down from 19% last year, while 20% said they believed the private sector was well prepared.
AXA CEO, Thomas Buberl, noted that the findings “confirmed a trend that has been evident for years: an increase in the general feeling of vulnerability, and erosion of confidence in the ability of institutions to find sustainable solutions”.
As Russia’s invasion of Ukraine wages on, insurers expect tensions to persist, threatening energy and food supplies, and rendering inter-governmental cooperation difficult to achieve, according to AXA.
Rising temperatures and sea levels are driving extreme weather events, heightening risks in areas like energy and food security.
According to James Papazis, director of operations and legal counsel at US insurer GCube: “Climate risks are becoming increasingly worrying to insurers, particularly in the renewable energy sector.
“This year, in North America, we witnessed an unprecedent scale of damage because of extreme weather and natural catastrophes. Despite growing awareness of the risk of climate change, large-scale losses continue to take the industry by surprise,” he said.
According to Papazis, hail and rainstorms were dominating the top spot for severity in terms of projected claims costs.
“The hail losses experienced in Texas in early summer 2022 resulted in solar losses estimated in excess of $300m – almost twice as severe as the other key renewable losses of the last three years combined, and close to ten times as severe as losses from 2020’s Hurricane Hanna,” he said.
Papazis also noted that solar installations had sustained much greater damage than wind since 2020, both in terms of frequency and severity of claims.
Operational projects and projects under construction were equally exposed to losses, he explained.
Despite growing awareness of the risk of climate change, large-scale losses continue to take the industry by surprise.
Call to action
Survey respondents called for greater investment in risk prevention and mitigation, such as investments in defensive infrastructure.
Physical risks were most concerning, such as from floods, heatwaves and storms, rather than liability risks for damages or managing the energy transition.
Emerging markets are particularly vulnerable to the physical impacts of climate change. This summer in Japan, citizens were asked to limit electricity use and ration air-conditioning to avoid power shortages.
The Net-Zero Insurance Alliance, a group of 29 leading insurers representing more than 14% of world premium volume globally, has pledged to align portfolios to net zero in line with Paris targets.
Members include Aviva, AXA, Allianz, Achmea, Beazley, Fidelis and Generali, among others.
A spokesperson at the Association of British Insurers (ABI) said: “As this report shows, insurance is not immune to the challenges of climate change and tackling it head on is a priority for our industry. The ABI has played a leading role in driving action within the sector, including the development of our Climate Change Roadmap, which sets out the role insurers can play in helping society to be as resilient as possible.”
