\n<\/p>\n
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Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT <\/p>\n
\u201cThe insurers always know first.\u201d That\u2019s the view of one fund manager, referring to how some credit insurance providers reduced their exposure to First Brands ahead of the auto parts maker\u2019s spectacular collapse.<\/p>\n
The assertion is questionable in the First Brands case, given that several major insurance companies are now preparing for a rush of potential claims. <\/p>\n
When it comes to climate risk, however, the insurance industry has undeniably been taking threats more seriously, and for longer, than most other business sectors. What do insurers\u2019 latest moves mean for their clients, and the wider economy?<\/p>\n
If you\u2019re an insurer whose clients face growing threats from weather disasters, one potential response is obvious. You raise your prices to reflect the rising risk \u2014 and if the clients can\u2019t afford it, too bad for them.<\/p>\n
This has already started to happen \u2014 with serious consequences for property markets in vulnerable parts of the US, where homeowners are finding it increasingly hard to secure coverage.<\/p>\n
But there are some obvious problems with a long-term business model that involves providing your services to fewer and fewer customers. So insurers are now putting serious work into helping clients strengthen their defences against climate disasters \u2014 in the hope of keeping them insurable.<\/p>\n
Yesterday my Tokyo colleague David Keohane published an interview with the boss of Tokio Marine & Nichido Fire Insurance \u2014 the main property and casualty arm of Japan\u2019s largest non-life insurer, Tokio Marine.<\/p>\n
Hiroaki Shirota highlighted Tokio Marine\u2019s recent $642mn acquisition of Integrated Design & Engineering, a consultancy focused on natural disaster mitigation. The insurer hopes ID&E\u2019s services will help its customers protect themselves against events such as typhoons and landslides \u2014 and help Tokio Marine keep insuring them at prices they can afford.<\/p>\n
If customers simply \u201ckeep on filing insurance claims\u201d instead of building resilience, Shirota warned, \u201ctheir premium price is likely to go up\u201d.<\/p>\n
An insurer buying an engineering company is highly unusual. But it reflects a wider trend in the sector, as insurers and reinsurers try to strengthen their clients\u2019 defences against climate risks.<\/p>\n
In July, Germany\u2019s Allianz launched a platform called Climate Adaptation and Resilience Services, which its consulting unit will use to help insurance clients assess and tackle their climate vulnerabilities.<\/p>\n
Zurich Insurance Group now has a \u201cresilience solutions\u201d unit that advised Danish shipping group Maersk, for example, on protecting its port terminals against extreme weather. Munich Re has launched a \u201clocation risk intelligence\u201d system that companies can use to assess climate threats. France\u2019s Axa recently started marketing \u201csustainability-linked insurance\u201d in places like Hong Kong, with lower premiums for clients who invest in flood defences.<\/p>\n
These new approaches by insurers can hardly be a panacea for the global \u201cinsurability\u201d challenge as the dangers to some regions reach new levels. They may have a slight restraining effect on property insurance rates, which rose steadily for most of the past decade. This chart shows an index of reinsurance pricing for property catastrophe cover:<\/p>\n
The dip so far this year reflects a surge of capital into the reinsurance market in response to the higher prices, largely from catastrophe bond investors, Morningstar analyst Henry Heathfield told me. That strong capital supply is likely to keep prices heading lower for the next few years, he argued in a recent paper.<\/p>\n
Even if that forecast pans out, these price figures tell only part of the story, as a growing number of climate-vulnerable property owners fall out of the insurance market altogether.<\/p>\n
Private-sector insurers have been withdrawing from covering fire-prone property in California, deterred by rising disaster risks and regulatory limits on price increases. In parts of Florida vulnerable to storms, an increasing number of homeowners have opted to go without insurance because they\u2019re unable or unwilling to pay the surging prices demanded by insurers.<\/p>\n
It\u2019s not just the US that faces a widening insurance gap. A sobering paper from the European Central Bank in May warned that only \u20ac13bn of last year\u2019s \u20ac30bn in European natural disaster losses was insured. Worse, it added, \u201cthe long-run average share of insured losses is continuing to fall across the euro area as a whole\u201d.<\/p>\n
This trend is leading economies in a bad direction. The Bank for International Settlements has warned of the potential for an \u201cinsurability tipping point\u201d \u2014 in which large parts of the property market are no longer insured, leading to a real estate price fall with grave implications for the banking sector and the wider global economy.<\/p>\n
This year, Allianz board member G\u00fcnther Thallinger called this an \u201cexistential threat\u201d to the capitalist system. \u201cWe are fast approaching temperature levels\u2009.\u2009.\u2009.\u2009where insurers will no longer be able to offer coverage for many [property] risks,\u201d he wrote. \u201cThe math breaks down: the premiums required exceed what people or companies can pay.\u201d<\/p>\n
While few insurance executives have put it so bluntly, recent developments in the industry suggest Thallinger\u2019s concern is widely shared. As long as policymakers fail to act on the signals they\u2019re sending, insurers\u2019 ability to tackle this problem through consulting services and price incentives will be limited.<\/p>\n
Behind the scenes <\/strong>Is lobbying by oil company ExxonMobil behind the EU\u2019s move to weaken a landmark sustainability law? Check out this new report from investigative group SOMO.<\/p>\n Meat market <\/strong>Droughts in the US have been a big factor behind soaring beef prices.<\/p>\n Tracking the buzz <\/strong>A new FT special report on electricity covers hot topics from offshore wind to energy-hungry data centres, and China\u2019s \u201celectrostate\u201d strategy.<\/p>\n The Climate Graphic: Explained<\/strong> \u2014 Understanding the most important climate data of the week. Sign up here<\/p>\n The AI Shift<\/strong> \u2014 John Burn-Murdoch and Sarah O\u2019Connor dive into how AI is transforming the world of work. Sign up here<\/p>\n","protected":false},"excerpt":{"rendered":" This article is an on-site version of our Moral Money newsletter. Premium subscribers can sign up here to get the newsletter delivered twice a week. Standard subscribers can upgrade to Premium here, or explore all FT newsletters. Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT<\/p>\n","protected":false},"author":1,"featured_media":27196,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[186,16259,15787],"class_list":{"0":"post-27195","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-climate","9":"tag-consulting","10":"tag-insurers"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/27195","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=27195"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/27195\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/27196"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=27195"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=27195"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=27195"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Recommended newsletters for you<\/h3>\n