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Climate Change and Insurers: A much desired paradigm shift!

March 24, 2020

https://bfsi.economictimes.indiatimes.com/blog/climate-change-and-insurers-a-much-desired-paradigm-shift/4112

Translation in simplified Chinese courtesy InsConsulting Team:

Climate Change and Insurers: A much desired paradigm shift!
气候变化与保险人:一个亟待发生的转变!

While insurers tend to be linear in their thinking and action – there is an element of circularity between insurance and climate change. COVID 2019 is for sure one such bender but then there is a lot more that comes in the way of the rounding! This is something embedded deep down in insurers’ DNA. Not only an element of ‘remote’ ought to counter the obsession with proximate, so does the singleminded pursuit of predictability with unpredictability. Let us look at some of the challenges that tend to act as the blind spots.
保险人在战略思维和公司运营上是“线性的”——即使用二元论的思想指导行为,但他们却忽略了保险和气候变化之间的相互作用。COVID-19就是这种相互作用的一个例证,但绝不是最后一个。这种二元论的“线性”思维深植于保险公司的骨子里:用业务的长期“远虑”以抵御风险的“近忧”扰动、永远孜孜不倦地追求事物的“可预测性”和“不可预测性”。但以下几个例子说明,二元论的盲点往往会成为保险公司的挑战。

Climate change is a cross class financial risk: Ecological disturbances such as urbanisation and deforestation together with rising temperatures as well as sea level rise are forcing wild animals closer to domestic animals and humans. Thereby exposing us to novel diseases. It is estimated that in the last few decades 60% of all recognised human diseases and 75% of emerging infectious diseases were zoonoses or transmitted from animals to humans. Corona virus is neither the beginning nor the end of it. Health and life insurers get directly impacted apart from the supply chain implications. We are also witnessing customers scrambling for coverage against Business Interruption losses emanating from cancellations and restrictions to pre-empt a Covid-2019 breakout.
气候变化是一个跨类别的金融风险:城市化和森林砍伐等活动造成了生态扰动、气温和海平面上升迫使野生动物离家畜和人类更进一步,这使得人类面临新的疾病。据估计,在过去几十年中,60%的人类公共疾病和75%的新兴传染病是人畜共患或由动物传染给人类的。冠状病毒既不是这些悲剧的开场,也不是它们的尾声。健康险和寿险公司的保险业务和上下游产业供应链受到了直接冲击。非寿险公司也迎来了为抢在新冠肺炎爆发前投保营业中断险、取消险而排起长龙的客户。

By 2100, it is projected that, stress from extreme heat and humidity will annually impact areas which are home to about 1.2 billion people worldwide (according to Rutgers University-New Brunswick, USA). This may damage the brain and other vital organs. Another big threat for both life and health insurers.
据美国罗格斯大学-新不伦瑞克分校预测,到2100年,全球约12亿人每年都将生活在极端高温和潮湿的环境压力之下,他们的大脑和其他重要器官将因此受损,从而给寿险公司带来另一个重大威胁。

While some climate deniers disagree with the fact that the intensity of bushfires in California and Australia were a result of climate change. Likewise, burning rainforests in the Amazon delta and elsewhere will have adverse implications for global climate. What does this have to do with insurance? Well, some assets in vulnerable locations prone to high frequency and high severity losses are being ‘redlined’ by insurers. Thereby attracting higher pricing and deductibles. And in some instance rendering uninsurable, as well. The full thrust of climate change on the insurance industry tends to get camouflaged under the guise of Natural Catastrophe or Act of God.
尽管一些人否认气候与自然灾害有关,但美国加州和澳大利亚的森林大火是气候变化的恶果这一事实已不容置喙。同样,此时此刻在亚马逊三角洲和其他地方燃烧着的热带雨林也会使全球气候雪上加霜。有人也许会问,这和保险有什么关系?事实上,保险公司正在对易受冲击、容易发生高频率和严重损失的地区的一些标的进行“评级”。从而提高对应保险的价格和免赔额。在某些极端情况下,保险公司也会因标的风险过高而无法承保。气候变化对保险业的全面冲击,往往伪装在自然灾害或天灾的幌子后面。

While the science of Climate Change is well established, regulators and activists have begun to challenge insurers on their investments in the fossil fuel industry. Insurers not only underwrite risks including the non -renewable energy segment which has precipitated the climate crisis – they are risk managers and particularly the ones in North America are big investors in the fossil fuel industry.
气候变化科学的发展已经日趋成熟,监管机构和气候活动家已经开始质疑保险公司在化石燃料行业投资行为的社会效益。保险公司是风险承保人(承保的风险也包括引发气候危机的不可再生能源行业的风险),是风险管理者,也是化石燃料行业的大投资者(特别是北美保险公司)。

Pollution globally kills approximately 7 million people each year. If you continue insuring polluting industries and invest in them – you are truly between the devil and the deep blue sea. Any drop in the auto sales makes insurers gloomy. Perhaps they miss out on the fact that this could be good news to their health portfolio. It’s been more than 25 years since California sued top auto manufacturers for causing Greenhouse Gas (GHG) effect. Needless, therefore, to mention the recognition of the linkage between pollution and climate change.
全球每年约有700万人死于污染。如果保险人继续为污染行业承保风险并为他们提供资金——那他们将处于进退维谷的地步。现在,新车销量的下降让保险公司感到悲观。但他们或许没意识到这可能是对于其健康险业务的利好消息——加州起诉顶级汽车制造商造成温室气体(GHG)效应已经25年了,空气污染与气候变化之间的联系不言自喻。

What till recently also sounded remote was management liability. Not only fossil fuel companies are expected to face growing class actions from a range of stakeholders, Norwegian Cruise lines is faced with a D&O lawsuit. The first such arising from Covid 2019. Dismissing this as a Black Swan event would be rather naïve. Infact the repeated strong signals of an imminent global killer pandemic breakout over the years was missed out in all the noise. The buck, therefore, ends up with the boards of responsible businesses.
“管理责任”这个词直到现在听起来离我们还很遥远。不仅化石燃料公司将面临来自众多利益相关者的集体诉讼,挪威邮轮公司(中国境内叫诺唯真邮轮公司)现在也同样面临着董事责任诉讼。有人认为这是新冠肺炎疫情导致的第一起类似案例,并将其视为黑天鹅事件,但事实证明他们太天真了。全球致命流行病爆发的强烈信号在近年来反复出现,它们却在社会的各种噪音中被忽略了。因此,责任最终只能落在了企业董事会身上。
The current risk management practices of insurers tend to be myopic. To deftly deal with Climate Change calls for both a wider time frame and imagination. Risk modeling based on a couple of centuries historical data – of a 4 billion-year-old Planet – is too miniscule for it to be predictive. Lastly, it needs to be accepted that the effect of some of the things insurers insure and invest in results in Climate Change. Howsoever seemingly remote a cause Climate Change might seem; it is increasingly turning out to be proximate to loss triggers. The starting point for insurers to cope with Climate Change calls for shedding the linearity.
保险公司目前的风险管理做法往往是短视的。要巧妙地应对气候变化,需要长远的眼光和对未来的构想。对于一个拥有40亿年历史的星球来说,仅仅基于几百年历史数据的风险建模实在微不足道,无法帮助人类掌握自然的规律。最后,一个大家不得不接受的事实是,保险公司承保或投资的标的确实导致了气候的变化。无论气候变化离保险事故的“近因”有多远,标的的出险概率已经被它潜移默化地提升了。从应对气候变化的角度出发,保险人是时候跳出“线性”思维了。

Praveen Gupta
英国特许保险学会会员
前保险公司首席执行官、气候活动家

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