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Climate Change Gets Life Insurers’ Attention

After several years of record-setting hurricanes and wildfires, the property/casualty insurance industry has been made acutely aware of how climate change affects claims and risk. Now the life insurance industry is beginning to pay attention to climate change as well.

In EY’s latest insurance industry report, “How Insurers Must Change In A Fast-Moving World,” researchers said climate change is one area that insurers must address as they look to the future.

In addition to the potential of causing multibillion-dollar losses through natural disasters such as hurricanes, climate change has the potential to affect human life expectancy, which is one reason why life insurers must examine the possible consequences of a warming world, said Ed Majkowski, EY’s Americas insurance advisory leader.

Life insurers “are still in monitoring mode” as their leaders begin to take a long-term view of how climate change will affect their industry and the clients they insure, Majkowski said.

“Climate change isn’t a ‘holy crow, I have to do something right now this quarter,’ thing for life insurers,” he said. “But as data and models improve, life insurers will continue to quantify future long-term risks, and make strategic long-term decisions about their book of business and their customer base.”

Life insurers’ boards are asking company leaders what steps they are taking to examine the short-term and long-term trends of climate change, Majkowski said. “A lot of boards are asking insurers what are the key questions you are asking relative to who you insure, what do you insure, what geographic areas do you insure?

“Insurers need to look at what are the lives you are insuring? Where are they?” Majkowski said. “Are they in areas that are more susceptible to climate change impacts, whether in California because of the environment that causes wildfires or along the coastal areas that are impacted by rising sea levels?”

Life carriers need to examine the data they have about climate change to determine what changes they need to make to their mix of business in response to climate change, Majkowski said.

Many insurance companies sell P/C as well as life and annuity products, so they already are more focused on the ways climate change affects the risk of insuring properties in areas that are more likely to experience disasters such as hurricanes, flooding and wildfire. Majkowski said the life side of the industry will need more data and analysis to determine how climate change will affect matters such as health and life expectancy.

Regulators also are leaning on life insurers to disclose how they plan to address climate change, Majkowski said. “They are asking life insurers and annuity writers to make sure they have something built into their plans to assess these risks.”

Not only are life insurers compelled to address climate change, but “the investment industry is forcing every industry’s hand to talk about climate change and explain how they are going to deal with it,” Majkowski said. “Every company is being asked questions about it: what’s in your investment portfolio and have you assessed the risk to that investment of climate change or other sustainability measures?”

The life insurance industry has always taken a long-term view of planning, and climate change will be part of that planning, he continued.
“It’s hard to worry about what’s going to happen over the next 100 years unless you’re looking at climate change,” he said

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Follow her on Twitter @INNsusan. Contact her at [email protected].

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