“There is a lot they can do besides just exiting markets.”
- Recent insurer retreats due to climate change-related risks have highlighted the precarious nature of the industry.
- These retreats result in pricier premiums, coverage uncertainty, and, in extreme cases, market exits.
- However, the uninsured market created by such retreats presents opportunities for those willing to capitalize on it.
Insurers’ Profit Motive:
- Insurers’ primary goal is to generate profits, but exiting high-risk markets may not always be the best strategy.
- Insurance companies are in the business of pricing risks and should adapt to climate-related challenges.
Asia’s Unique Position:
- Unlike North America and Europe, Asia hasn’t seen significant insurer retreats from high-catastrophe-risk regions.
- Research indicates that only 14% of economic losses from natural disasters in the APAC region are insured, compared to the global average of around 40%.
Protection Gap and Challenges:
- The protection gap in Asia, where many economic losses remain uninsured, creates opportunities for insurers.
- Extreme weather events can make carriers reconsider their coverage, impacting the protection gap.
Short-Sightedness as an Issue:
- Short-term focus can hinder insurers’ long-term strategies.
- Annual underwriting adjustments may lead to short-sighted underwriting strategies.
Strategies for Addressing Climate Risks:
- Prioritize regulator engagement to address climate risks effectively.
- Explore longer-term underwriting and pricing strategies.
- Utilize sophisticated risk mitigation measures such as catastrophe models and climate models.
- Encourage product innovation to incentivize policyholders to reduce risks.
Future of the Insurance Market:
- While challenges abound, there will likely still be an insurance market.
- Viability depends on governments protecting individuals through legislation and insurers offering robust propositions.
- Despite insurer retreats driven by climate change risks, opportunities exist in the uninsured market.
- Insurers must adopt long-term strategies, engage with regulators, and leverage risk mitigation measures to navigate the challenges of climate change.
- The future of the insurance market depends on a collaborative effort involving insurers, governments, and innovative solutions.