Globally, we have continued to see an increase in weather-related perils, scientifically correlated with global warming. These extreme weather changes have caused insurers in Germany to call for action on climate change.
In July, severe storms and flash flooding devastated multiple German states. At least 220 people were killed in a span of three days and thousands of structures were destroyed.1 This is enticing the German Insurance Association and member companies to promote the spread of natural hazard insurance, which can be significantly increased at base-risk prices. German insurers support a new overall concept for climate change adaptation, consisting of education, binding measures for private and state prevention, and insurance.2
Swiss Re, one of the largest reinsurance, insurance, and risk-transfer companies in the world, has entered a 10-year carbon removal purchase agreement valued at $10 million with Zurich-based Climeworks AG, a specialist in carbon dioxide air capture technology. The agreement will give Swiss Re early access to carbon removal risk pools and asset classes.
Christian Mumenthaler is the CEO of Swiss Re and co-chair of the World Economic Forum’s Alliance of CEO climate leaders. He said that in order “to mitigate the risks of climate change, the world needs to scale-up carbon removal on top of, not instead of, emission reductions,”2 The companies are developing risk management and risk transfer programs while exploring investment opportunities in the realm of carbon removal projects.
Swiss Re has a goal of reaching net-zero emissions in its own operations by 2030 and in its insurance and investment business by 2050.3
Can it be done?
Analysts at Societe Generale, a French financial services firm, say that the insurance industry can afford to stop covering the oil and gas industries as a way of combating climate change and incentivizing the use of alternative energy solutions.
However, insurers are not taking meaningful steps in that direction, Bloomberg Quint reported. According to a SocGen report, premiums from ensuring new oil and gas projects accounted for just 0.1% of all property and casualty premiums in 2018, indicating that withdrawing from oil and gas industry would not have a significant impact on insurers.4
Overall, there can be a pivot in the types of risks the global insurers pivot their books into. These comments highlight the importance of moving books of business around to help combat the climate change effects.
1 Dewan, Angela. “Germany’s deadly floods were up to 9 times more likely because of climate change, study estimates.” CNN, 24 Aug. 2021, https://www.cnn.com/2021/08/23/europe/germany-floods-belgium-climate-change-intl/index.html. Accessed 11 Oct. 2021.
2 Ladbury, Adrian. “German Insurers Call for Action as Flood Damage Forecast Reaches €7bn.” Commercial Risk, 31 Aug. 2021, https://www.commercialriskonline.com/german-insurers-call-for-action-as-flood-damage-forecast-reaches-e7bn/.
3 “Swiss Re Enters into $10M Carbon Removal Agreement.” Business Insurance, 25 Aug. 2021, https://www.businessinsurance.com/article/20210825/NEWS06/912344105/Swiss-Re-enters-into-$10M-carbon-removal-agreement-Zurich-Climeworks-AG-carbon-d.
4 “Insurers Can Easily Exit Oil and Gas Sector but They Don’t.” Business Insurance, 26 Aug. 2021, https://www.businessinsurance.com/article/20210826/STORY/912344119/Insurers-can-easily-exit-oil-and-gas-sector-but-they-don%E2%80%99t.