{"id":46532,"date":"2023-02-01T15:16:55","date_gmt":"2023-02-01T20:16:55","guid":{"rendered":"https:\/\/www.bloomberg.com\/professional\/insights\/data\/climate-is-forcing-the-most-risk-aware-industry-to-reinvent-itself\/"},"modified":"2024-09-13T19:08:39","modified_gmt":"2024-09-13T23:08:39","slug":"climate-is-forcing-the-most-risk-aware-industry-to-reinvent-itself","status":"publish","type":[3762],"link":"https:\/\/www.bloomberg.com\/professional\/insights\/data\/climate-is-forcing-the-most-risk-aware-industry-to-reinvent-itself\/","title":{"rendered":"Climate is forcing the most risk-aware industry to reinvent itself"},"content":{"rendered":"<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-6a04e4892a141]::before {\n\t\t\t\tbackground-color: #eeeeee;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--eeeeee text--black bbg-row--full-bg-bleed\" data-anchor='row-6a04e4892a141'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8 bbg-column--valign-bottom\"\n    style=\"\"\n    >\n    <p>    <ul class=\"bbg-categories_list\">\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/data\/\" rel=\"category tag\">\n                    Data\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/sustainable-finance\/\" rel=\"category tag\">\n                    Sustainable Finance\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/technology\/\" rel=\"category tag\">\n                    Technology\n                <\/a>\n            <\/li>\n            <\/ul>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 24px !important\"\n    >\n<\/div>    <h1 class=\"bbg-metadata bbg-metadata--title\">Climate is forcing the most risk-aware industry to reinvent itself<\/h1>\n<\/p>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a04e48930641'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer\"\n        style=\"height: 40px !important\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg byline\"\n\t\t>\n\t<p><strong>Bloomberg News <\/strong><\/p>\n\n<\/div>\n    <p class=\"bbg-metadata bbg-metadata--date\">February 1, 2023<\/p>\n<\/p>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none bbg-row--full-bg-bleed\" data-anchor='row-6a04e48932868'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <p><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><i><span style=\"font-weight: 400\">This article was written by Akshat Rathi. It appeared first on the Bloomberg Terminal.<\/span><\/i><\/p>\n<p>When it comes to climate impacts, the frontline of the finance industry is insurance. Last year\u2019s payout from damages caused by extreme-weather events\u00a0totaled $120 billion\u2014about the same as the economic output of Kenya. And that\u2019s a 50% increase over the previous decade\u2019s average.<\/p>\n<p>It\u2019s becoming a big problem. Insurance provides companies and individuals with the peace of mind that, for a small premium paid regularly, they will be covered for when catastrophes such as floods or wildfires hit. However, if the payouts increase because more customers are making claims, then the insurance industry either takes in lower profits or it has to increase the regular premiums customers pay.<\/p>\n\n<\/div>\n<div class=\"bbg-interstitial\" aria-label=\"interstitial\" tabindex=\"0\">\n\t<style>\n\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\tbackground:rgba(0,0,0,0);\n\t\t\tpadding: 104px;\n\t\t\t\n\t\t\t\n\t\t}\n\t\t.bbg-interstitial #card_1.bbg-card_hasCta .bbg-card__content, .bbg-interstitial #card_1.bbg-card_hasCta .bbg-card__content p{\n\t\t\tcolor:inherit;\n\t\t}\n\t\t@media (max-width: 768px) {\n\t\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 32px;\n\t\t\t}\n\t\t}\n\t\t@media (max-width: 480px) {\n\t\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 18px;\n\t\t\t}\n\t\t}\n\t<\/style>\n\t<div class=\"wpb_content_element bbg-card  bbg-card-dark bbg-card_hasCta has_interstitial\" id=\"card_1\" data-card_type=\"no_image\">\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n      \n                      <h3 class=\"bbg-card__title\">Insights for Quant and Data Professionals delivered to your inbox<\/h3>\n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><p>Sign up for the newsletter<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_6024878102998116597\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/insights\/newsletter\/enterprise-data-and-tech\/\"\n        target=\"_blank\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p>Such is the scale of damage that the insurance industry is being forced to do both. The annual profit margins of insurance companies\u00a0are getting squeezed, even as premiums are going up for products like home insurance. \u201cThe insurance industry is facing the climate challenge head on,\u201d said Nina Seega, research director of sustainable finance at the Cambridge Institute for Sustainable Leadership.<\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:1024px\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"486\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png\" class=\"bbg-single-image__image attachment-large\" alt=\"\" title=\"insured-losses\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png 800w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png 100w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png 768w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png 600w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/insured-losses.png 1296w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p>When things get bad for the insurance industry, it relies on the re-insurance industry to help out. Companies like Swiss Re and Munich Re provide cover for insurers who are being hit with much higher payouts than before. Reinsurers have had it worse, according to a\u00a0Moody\u2019s report\u00a0published earlier this month, with its profits trailing those of insurers. That\u2019s causing reinsurers to increase their premiums, limiting the types of coverage they provide, and even exiting some markets.<\/p>\n<p>Now even the investors in re-insurers are unhappy about their investments as they get lower returns than expected. Following Hurricane Ian that hit Florida last year, investors aren\u2019t putting as\u00a0much new money into reinsurers, said\u00a0Charles Graham, senior insurance analyst for Bloomberg Intelligence. Climate impacts are leading to \u201ca domino effect,\u201d he said.<\/p>\n<p>In an ideal world, as premiums increase, market signals should force, say, property developers and buyers to places that face lower climate risk. But the insurance market doesn\u2019t always work well.<\/p>\n<p>\u201cOur pricing signal should imply that you have to change your behavior,\u201d said Christian Mumenthaler, group chief executive officer of Swiss Re, in an interview at the World Economic Forum in Davos last week. \u201cBut human beings generally don\u2019t like to change their behavior.\u201d<\/p>\n<p>Take the case of Florida. After Hurricane Andrew hit in 1992, the level of damage was so extreme that it led to\u00a0at least 16 insurers\u00a0going bankrupt. So the state stepped in and created a fund that lowers insurance premiums.<\/p>\n<p>That might seem like a good thing, but Florida\u2019s vulnerability to extreme-weather events has only grown. Since 2020,\u00a015 property insurers\u00a0have gone insolvent. And the state has stepped in with a $1 billion fund to ensure more regional insurers do not run out reserves as Floridians get hit with more climate impacts.<\/p>\n<p>The difficulties are forcing the insurance industry to get creative. There are three levers it can use to reduce climate risks: reduce its own emissions, force the companies it invests in to reduce their\u00a0greenhouse gases, and create products that would help its customers\u00a0shrink their environmental footprint.<\/p>\n<p>NN Group NV, one of the largest insurers in the Netherlands, now has an insurance product that doesn\u2019t simply replace a cracked screen of a smartphone but instead gets it repaired. Currently, the product is the more environmentally friendly option, but it costs the company more than simply buying a new phone. However, Chief Executive Officer David Knibbe is confident that it will also be more economical in the long term.<\/p>\n<p>\u201cWe need to do a lot more still,\u201d Knibbe said at an interview in Davos. \u201cI have more examples, but it\u2019s not a list of 20.\u201d<\/p>\n<p>The ultimate weapon the insurance industry can use is to stop insuring certain things altogether. Reinsurers Swiss Re and Munich Re\u00a0have\u00a0reduced their capacity\u00a0in Florida by as much as 80%, as the state gets battered with more extreme-weather events. Swiss Re\u2019s Mumenthaler says it has a policy to not insure new fossil-fuel projects, though he wouldn\u2019t say which customers he has had to say no to as a result of the policy.<\/p>\n<p>Seega says the insurance industry has come a long way from its early days when it used hunches to make decisions on risk. The industry has become more data-oriented, relying on history as a way to understand the future. The trouble now is climate change is making historical data a less reliable guide \u2014\u00a0meaning more innovation is needed to ensure the business survives.<\/p>\n<p>Climate risks are \u201cproviding the insurance industry an opportunity to reinvent itself,\u201d said Seega.<\/p>\n\n<\/div>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-6a04e48944bcc]::before {\n\t\t\t\tbackground-color: #eeeeee;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--eeeeee text--black bbg-row--full-bg-bleed\" data-anchor='row-6a04e48944bcc'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <div\n    class=\"bbg-column\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Recommended for 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Now, let us do that for you.<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_4631111455169742971\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/request-demo\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>When it comes to climate impacts, the frontline of the finance industry is 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