Climate Risk: The Importance of Education, Risk Reduction and Insurance – Insurance Business | Region & Cash

In 2021, the USA accounted for a high proportion of global losses from natural catastrophes, at around US$145bn, of which US$85bn was insured. Notable events included Hurricane Ida, which caused $65 billion in losses, of which approximately $36 billion was insured; Texas Freezer with $30 billion in losses, half of which was insured; and a series of violent storms and tornadoes in several states in the central and southeastern United States.

Climate research is increasingly confirming that extreme weather has become more likely. As climate change continues to influence weather patterns and cause more natural catastrophes and severe weather events, Munich Re US has identified a need for education for insurers, brokers, regulators, companies and communities to understand the growing insurance gap and the magnitude of potential losses due to climate change.

Insurers and brokers need to recognize the “lack of stationarity” and the constant evolution of climate risk, which means past events cannot be used to predict risks in the future, according to Raghuveer Vinukollu (pictured), SVP, Climate Resilience and Solutions Lead at Munich Re US.

“With the increasing frequency and severity of natural catastrophes and severe weather events, the (re)insurance industry must seek to understand climate risks and their impact on claims costs and portfolio management,” said Vinukollu. “We need to develop affordable and sustainable insurance solutions and manage the risks through effective mitigation, which includes working with other stakeholders [regulators, businesses, and communities] to make our infrastructure, land use management and building codes more resilient.”

Continue reading: The risks associated with a changing climate

Munich Re US has been researching climate risks since the 1970s and pioneered the use of meteorologists to better understand climate and weather risks. Vinukollu said the role of reinsurers is to “look ahead” to determine possible claims trends and work with insurers and brokers to find possible solutions.

To achieve this, many reinsurers have developed modeling and data analysis tools to assess the impact of climate risk on property, plant and equipment and create individual risk/portfolio analyzes that would provide information on the impact of chronic climate risk. For example, Munich Re US has developed a location risk intelligence tool that enables clients to identify and assess climate risks and include them in their underwriting and decision-making.

“As a reinsurer, Munich Re US is a risk taker. We constantly look to the future and say, “How are we going to manage the emerging risks that lie ahead and how can we help our brokers and clients do the same?” There are many models on the market, but Munich Re has been focused for on climate risks in the 1970s. We have our own datasets, including loss data, which is incredibly powerful,” Vinukollu said. “We can use this knowledge to educate policyholders on the importance of mitigation and regulators (and communities) on the impacts of climate change.”

Munich Re US engages in community-based climate risk mitigation and recovery projects with the aim of improving overall climate resilience and sustainability. For example, the reinsurer has worked with the city of Paradise, California, which was almost completely destroyed in the 2018 camp fire, to help them “rebuild better” and secure affordable and sustainable insurance solutions for the future.

look now: Learn more about Munich Re US’ community-based mitigation efforts

The company also actively works with flood-prone communities to help them mitigate flood risk and close the insurance coverage gap. In addition, Munich Re US is actively working with the Insurance Institute for Business and Home Safety (IBHS) to develop better building standards in the US that are more resilient to the hazards of wind, severe convective storms and wildfires.

“We need to change our behavior because these natural disasters and extreme weather events will continue to occur in the future. When communities rebuild after a disaster, we need to think about resilience and risk reduction. This is where public-private partnerships and community-based solutions will be important,” Vinukollu told Insurance Business. “We educate communities and show them the impact of risk reduction on their risk transfer [insurance] over time so they can see the benefit versus cost analysis. That really makes a significant difference.”

In addition to being at the forefront of climate risk mitigation, Munich Re US also focuses on developing insurance solutions to close the gap in climate risk protection. For example, Munich Re US offers affordable white-label flood insurance products for homeowners and business owners in low- to medium-risk areas. Vinukollu commented, “We are very proud to say that we are really addressing the protection gap there with more than 75,000 homeowners who are insured against floods and didn’t previously have flood insurance.”

According to Vinukollu, Munich Re US is also “far ahead of the curve” when it comes to developing sustainable solutions for the renewable and clean energy sector. He said: “We invest in green technology and offer performance guarantees for batteries, solar panels and so on. In addition to developing regular compensation solutions, we also work on derivative parametric covers for perils such as wind. There is a lot going on.”

Learn more about Munich Re US’ climate risk solution at https://www.munichre.com/us-non-life/en/solutions/reinsurance/products/climate-risk.html

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