A new report by Conning, a provider of investment management and insurance research, titled “Climate Risk: An Imminent Threat to Business,” highlights the growing importance of assessing and managing both physical and transitional climate change risks within the insurance industry.
The report, based on a survey of insurance executives, reflects Conning’s focus on delivering insights into key industry challenges.
The potential effects of climate change, including more frequent extreme weather events and disruptions to ecosystems and human livelihoods, are raising concerns about their financial impact on the insurance sector.
Manu Mazumdar, a Director and Head of Data Analytics and Insurance Technology in Conning’s Insurance Research group, and principal author of this climate risk study, commented: “60% of executives indicated plans to invest in tools, vendors, data, and underwriting practices to enhance climate risk assessments.
“The survey also found that smaller insurers—those underwriting less than $5 billion in direct premiums, accounting for 53% of the market— as a significant segment seeking additional support in managing the challenges posed by climate risk.”
Additionally, recent changes to SEC (Securities and Exchange Commission) disclosure rules have added uncertainty regarding transitional climate risks.
According to the report, 91% of insurance executives expressed “significant” concern about climate change as a threat to their businesses, with the remaining 9% recognising at least some level of risk.
“During the period 2017 to 2023, the homeowners insurance and the commercial property lines together reported $935 billion in loss and expense against $882 billion in net premiums earned (~$52 billion in underwriting losses). While a longer-tailed lines may be able to eke out an operating profit with strong investment returns given those results, the property lines are short tailed, and a 105% to 106% combined ratio is not sustainable,” added Scott Hawkins, a Managing Director and Head of Insurance Research at Conning.
