Building climate-resilience

Climate change and its substantial risks present a huge opportunity for insurers, according to a major new report by Capgemini.

Capgemini has launched its first ever World Property & Casualty Insurance Report, focused on climate change.

With continual storms wreaking havoc across the UK, and wildfires raging across Australia, property damage has reached new heights in recent months on a global scale – and insurers are now trying to walk the talk to achieve climate resiliency, as the report found.

Even as losses continue to mount and concerns from policy holders grow, insurers are expected to both protect and prevent against future damage, according to the report. While this is challenging, it suggests that this presents an opportunity for insurers to pivot and recalibrate to serve customers in a dynamic landscape.

According to the report, climate change is significantly affecting people and businesses. Not surprisingly, it is a top concern for policyholders and insurers − worldwide. However, Capgemini says that for proactive insurers, climate change can also provide an opportunity to enable purpose through actions by actively building climate-resilient business models and propositions.

According to Capgemini:

  • Over the past three decades, economic loss driven by climate change increased by 250%.
  • Policyholders are conscious of climate change, and around three-quarters of them rank it among their top concerns.
  • Insurers are in tune with customers. About 40% rank climate change as a top priority, with profitability and insurability emerging as leading climate-related issues.
  • While most insurers acknowledge climate change impact, many have yet to develop a climate resiliency strategy.

Fundamental business model changes are required

Future-focused insurers will embed climate strategies into their operating and business models, Capgemini suggests. However, it also says that requires fundamental changes such as revisiting data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments. To achieve this, insurers need to build a resilience ecosystem by collaborating with government, communities, and ClimateTech specialists to achieve success.

  • The analysis suggests that a select few insurers (8%) are on course to achieve climate resiliency – so-called insurance frontrunners Resilience Champions.
  • Climate resilience requires a sophisticated data strategy, the report found. Yet, only 35% of insurers have adopted advanced data analysis tools such as machine-learning-based pricing and risk models. These tools are critical to unlocking new data potential and enabling more accurate risk assessments.
  • Risk prevention based on data and behavioural science is at the top of the agenda for future- focused insurers. More than 65% of customers are interested in climate risk prevention and mitigation services, and 53% will pay for them.
  • More than 30% of insurers restrict investment in unsustainable companies, and more than 20% restrict coverage to unsustainable companies. Insurers that move beyond exclusions and divestment and actively engage in risk prevention will position themselves to support the transition to a climate resilient economy.

Insurers must embed climate resiliency into business strategy

The report suggests that three key actions can fuel insurers’ climate resiliency journey while boosting their relevance and profitability and contributing more meaning- fully to one of the most significant modern-day challenges:

Revisit your corporate strategy

Articulate climate resilience as a structured part of the corporate strategy to assure shareholders of the value-creation potential for all parties involved. Well-defined actions assigned to individual C-level executives will ensure clear ownership.

Rework innovation

Encourage it to bridge the gap between long- term ambitions and short-term planning horizons and engage with resilience ecosystem partners to access new capabilities.

Redesign your technology strategy

Deploy IoT, cloud, artificial intelligence, machine learning, and quantum computing to enable insurers’ path forward by improving risk management, innovating products, transforming claims, and elevating customer experience.

Other findings were that climate change is fundamentally altering policyholder behaviour. Climate change emerged as policyholders’ second-highest concern (73%), behind COVID-19 in the Voice of Customer survey.

As the report says: “Climate change has upended traditional coverage dynamics and today’s policyholders seek protection and peace of mind more than ever. More than 80% of individual and commercial clients have taken at least one sustainable action over the last 12 months – including activities as small as walking versus driving and as significant as investing in resilient structural infrastructure.”

A further crucial finding was that most insurers are only beginning their resilience journey, however:

“To understand insurance carriers’ maturity in the journey towards climate resiliency, we interviewed 270 insurance executives worldwide. Our conversations revealed that only 8% were on the fast track. We call these future-focused insurers Resilience Champions. For many other players, the opportunity is to be fast followers and turn their commitments into actions.”

According to the report, climate change is significantly affecting people and businesses. Not surprisingly, it is a top concern for policyholders and insurers − worldwide. However, Capgemini says that for proactive insurers, climate change can also provide an opportunity to enable purpose through actions by actively building climate-resilient business models and propositions.

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