Pricing Of Property Premiums Does Not Reflect Growing Risk

A recent report from Entergy Corp. said that without climate-change mediation, economic losses in the Gulf Coast could rise 50-60 percent by 2030 to $23 billion annually.

“I can say that price levels are at a low and do not reflect the risk at the moment in many regions [of the United States], especially as reflected in Florida and the Gulf Coast,” said Andreas Spiegel, senior climate change advisor at Swiss Re.

These regions have not adequately adapted to the risk of climate change and premiums there don't reflect the underlying risk, he said.

Not enough is being done to adapt to future climate-change scenarios, he continued. To do so would require government and elected officials to rethink future development throughout the region with new building codes. There will need to be a rethinking about how to improve or reduce the vulnerability to assets and homes from the impact of tropical cyclones.

But insurers don't have the power to make these adjustments and are dependent upon state and federal authorities to implement the necessary changes.

“The more adaptation [there is] on the technical side, the lower the risk premium will be and the lower insurance will be,” he pointed out.

If there is limited implementation of the changes that need to be made, however, it will ultimately mean premiums will increase, perhaps to unaffordable levels.

The bottom line, he said, is that more needs to be done in the United States on this issue and insurers need to be at the forefront.

“It goes hand-in-hand,” he said. “Adapting to climate change requires close cooperation with policymakers and the insurance sector as well.”

“Some insurers are more advanced than others and less skeptical,” Mr. Spiegel observed. “But if you compare them to other larger insurance companies worldwide, then I would definitely say that in the United States there is less activity to convince decision-makers about the impact of climate change.”

For its part, Swiss Re is helping governments around the world with adaptation to climate change by assisting with estimates and cost-benefit analysis and investing the money that makes up parts of the risk-transfer solution.