The insurance industry appears to be gradually facing up to one of the largest global stories at present in climate change, with a series of insurers taking action throughout 2019.

Aviva launched a specialised renewable energy policy in November, which offers cover for marine project cargo, construction and operational, third-party liability, and terrorism cover. This followed the insurer being a founding signatory to the Finance Principles of the Powering Past Coal Alliance, a global organisation of governments and businesses working on alternatives to coal power, in July 2019.

In November, AXA also announced it would no longer sell insurance to coal companies by 2030. The details specify that it will not insure any company that generates in excess of 30% of its turnover or electrical production from coal or produces over 20 million metric tons of coal per year. QBE and Chubb also announced similar changes earlier in 2019.

The costs of climate change for insurers

These appear to be sensible moves from the leading insurers and could be good for both PR and businesses. Climate change is already having a severe impact on insurers around the world, with a higher frequency of extreme weather events such as hurricanes, which are widely believed to be caused by climate change, costing the industry billions.

Swiss Re estimated that the total economic losses from natural and man-made catastrophes was $155bn in 2018. This was a reduction from $350bn in 2017, but the global industry losses for 2018 were still estimated at $79bn.

Furthermore, Munich Re has said that 2017-18 was the worst two-year period for natural catastrophes on record, with insured losses totalling $225bn. The firm also said that hurricanes, wildfires and floods cost the world $150bn in 2019.

Insurers faced increasing pressure to act in 2019, with Extinction Rebellion protests specifically targeting headquarters of UK insurers and brokers in Fenchurch Street, London. This pressure is unlikely to decline due to the prominence of the issue and insurance’s traditionally close links to non-renewable energy, so we expect action from insurers to continue into 2020.

However, are the recent moves enough? Has the pressure done anything? Looking at the sheer costs calculated by Swiss Re and Munich Re, the action is minuscule compared to what is needed.

To highlight the difference between climate change cost and investment, look at WorldCover, an insurtech that specifically focuses on climate change. In May 2019, it raised a mere $6m in Series A funding.

Torsten Jeworrek, member of the Board of Management at Munich Re, said: “The severe cyclones in 2019 have highlighted the importance of knowledge about changes in risk. Natural climate variations influence weather catastrophes from year to year. Longer-term climate change effects can already be felt and seen. Buildings and infrastructure must be made more resistant in order to reverse the increasing trend in losses. This will enable insurance to be more effective and support the remaining financial losses.”

Insurance needs to be more “effective”, and insurers more proactive, before there’s nothing left to insure.