The first three weeks of the year have finally seen the cat let out of the bag when it comes to the rising threat caused by climate change and what it means for the insurance industry.

For several years there have been murmurings behind the scenes that the global (re)insurance industry was growing increasingly concerned over the scale of potential losses from climate-driven natural catastrophe events.

Reinsurers began to limit their exposures and the murmurings began to grow louder. Talk increased of the need for resilience not restitution and there were quiet warnings that something had to change.

That momentum has only been increased by the fact that insured natural catastrophe losses surpassed $100 billion for the sixth year in a row last year. What was considered a catastrophic claims year is now the new normal.

Well it seems the gloves are now off.

This week Aon issued its annual Climate and Catastrophe Insight report, which found severe convective storms (SCS) have surpassed tropical cyclones to become the costliest insured peril of the 21st century.

The report added how increasingly common, high‑volume events are reshaping global loss patterns and stressed the critical importance of both physical and financial resilience to help organisations manage volatility and unlock insurability.

The brokers highlighted the need for resilience once again and the warnings did not stop. Indeed scientists in Sweden went so far as to say the current way in which the (re)insurance industry operates would create an insurability crisis.

The team from the Stockholm Environment Institute said short-term underwriting cycles and annual repricing prevent insurance from supporting long-term adaptation, since the focus on immediate solvency and profitability conflicts with the multi-decadal nature of climate risk.

It added: “Insurance alone cannot manage systemic climate risk. Without stronger adaptation, better data, and coordinated public–private governance, risk transfer will increasingly fail where resilience is needed most.”

For businesses of all shapes and sizes there is now a decision which needs to be made.

It is clear we are set to see a complete realignment of the underwriting approach. Whether they will move to a more long-term view of a risk which, quite frankly is changing on an annual basis, is a long shot given the potential exposures should they make the wrong call.

Therefore businesses will need to understand that there will be a change in the way climate and natural perils are viewed and the underwriting appetite.

If brokers are warning of a need for resilience then it is clear they believe that capacity is likely to become ever harder to source.

Therefore businesses will need to take preventative steps, and climate proof their operations but it is easier said than done.

While you may well be able to put in place flood defences, systems to meet the challenges posed by heatwaves or severe cold, in your own organisations how much control do you have on your supply chain partners and their suppliers.

Just as SCS have overtaken cyclones as the biggest risk, resilience will overtake risk transfer as the biggest mitigation tool for businesses when it comes to natural peril events.

Jon Guy, Editor

Emerging Risks