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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurers publish guide to help mitigate climate risks

A group of leading global insurers has today published a practical guide to help investors better understand how climate change could impact their portfolios.

Action is necessary to maintain affordable insurance ©iStock
Action is necessary to maintain affordable insurance ©iStock

Allianz and Lloyds are among the ClimateWise group’s members, which warned that climate-related losses would continue to rise without significant risk management efforts.

The insurers estimate, for example, that average annual losses caused by floods to UK mortgages could more than double under the most extreme projections of global warming.

However, they calculate that property-level adaptation could offset up to 65% of the cost.

ClimateWise said insurance could become unaffordable without action, and that their guide provides support to identify, measure, mitigate, adapt and report on the impacts of climate change.

"This open-source tool will provide investors with the means of accessing the information they need to take action to mitigate climate risks and protect assets,” said David Rochester of Lloyds.

“We need to focus on both the mitigation of climate change, as well as adaptation to its effects, and if we do both, we can maintain affordable insurance – it’ s an important message.”

This comes after Swiss Re estimated that annual economic losses from natural disasters have averaged $180bn (£139bn) over the last decade, with around 70% of this uninsured.

ClimateWise also published a report exploring how to identify policy changes, reputation impacts, technology and shifts in market preferences as risks and opportunities for investors.

Aligned with Taskforce on Climate-related Financial Disclosures, the report determines what assets are exposed, assesses the impacts, and incorporates these into financial models.

Aon Benfield’s global chairman and CllimateWise chair, Dominic Christian, said $94trn of infrastructure investment is needed by 2040, which must be resilient to climate, social, economic and technological impacts.

“Exposure to infrastructure investments stretches across the financial services sector, yet few asset owners are truly considering transition risk,” he continued.

“These two reports will go some way to help address this.”

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