Helping Clients Prepare for Severe Weather Events
Insurers are challenged by climate risk because it’s difficult to measure and it unfolds over a long time period.
So, how do you help your clients prepare for the future?
First, let’s start with some definitions:
Weather looks at environmental conditions over the short-term, such as temperature, wind chill, humidity, and so one. Climate is the long-term view of weather over an extended period (usually 30 years or more). Climate change refers to long-term shifts in weather trends.
This latter term is also associated with the direct impact of a warming climate—physical risk—and the effects of moving to a low-carbon economy – transition risk.
Whether or not you believe in climate change, it’s pretty hard to ignore that the world is rapidly becoming warmer, sea levels are rising because of melting polar ice, and the frequency and severity of catastrophic environmental events are increasing.
The Key is Prevention
We’ll talk a bit more about risk transfer versus risk mitigation in another post, but it’s the preventative aspect of the latter that will be the most beneficial to our clients, and, in the end, to us. And while a quick response to a disaster is of utmost importance to our customers, there are ways we can help them reduce the worst effects of the disaster.
For example, insurance companies can activate better monitoring using drones and advanced sensors, or using insurtech to access finely tuned data to better predict where and when events could occur. Even practical steps—providing incentives to install the right kind of roof shingle (fire-retardant, for example, in a wildfire zone) and building design for where they live, or making sure brush is cut back from structures—can make a significant impact on the damage incurred during a severe weather event.
In California’s wildfires, insurance companies sent in teams to join local efforts to cut back brush from buildings, or to spray flame-retardant foam around their policyholders’ homes.
Advocate for Policyholders
Aside from providing practical, hands-on help to policyholders, insurers can play an advocacy role for their customers with local governments and regulators, to elicit appropriate policy responses and planning. For example, urging governments to update building codes and environmental planning rules can reduce the damage from fire and natural hazards. Or managing urban forests to reduce the risk of fires.
The downside is that costs to replace losses will increase, so there is a balance to seek between prevention imperative and keeping insurance coverage affordable.
It’s tricky for insurers.
We have to adapt to rapidly changing weather patterns while pricing our products using models that may be outdated, AND while trying to avoid losses and stay in the red at the same time. Shifting from a traditional focus on protection to prevention means working together with the government, communities, and policyholders.
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