The warming of the planet due to the emission of greenhouse gases and the consequent increase in extreme weather events will translate into a increased cost of insurance policiesas admitted by the sector itself, to which the NGOs demand that it stop insuring investments in fossil fuel exploitation projects.
This has been explained to Efe by various specialists from the insurance industry, who forecasts that in the next 20 years global damage premiums will increase by 22% up to 183,000 million dollars (about 160,000 million euros) due to the intensification in the frequency and virulence of extreme weather events.
“The rates depend on the risk and the risk is increasing”settles the director of Swiss Re for Spain and Portugal, Santiago Arechaga, asked about the future of insurance in a world that is already one degree warmer than in the pre-industrial era.
Although he clarifies that there will be “competitive dynamics” that may affect this tariff policy, Arechaga reiterates that “the logical trend” if the pattern of natural catastrophes aggravated by the climate crisis is confirmed -as, he recalls, “is already happening”- is that there are “price corrections” to the upside.
Globally, between 2017 and 2018 the insurance sector suffered losses worth 219,000 million dollars as a result of natural disasters, its largest loss ever recorded in a two-year periodaccording to the Swiss Re Institute.
Mutualization of risk
While in other countries, such as the United States or Germany, citizens must take out specific policies that cover flood damage, for example, in Spain those costs -except in agricultural operations- are assumed by the Insurance Compensation Consortium (CCS), an entity which depends on the Ministry of Economic Affairs and Digital Transformation.
Of each private insurance that a person takes out in Spain -whether life or property-, 0.07 per thousand of the insured value is mutualized, a fixed rate that is independent of the risk of each particular case.
But CCS also plans to raise its rate if natural disasters become the norm and costs rise, which would imply that the insurers would pay more to this entity, and that increase could be transferred to the prices of the policies (although, according to the Consortium, it is most likely that the increase is due to the rate policy of the reinsurers, and not by the CCS).
In addition to natural catastrophes, the CCS takes on terrorist attacks, popular riots and other extraordinary risks, but the bulk of its costs, 87%, is used to cover damage from floods and atypical cyclonic storms.
Francisco Espejo, meteorologist and deputy director of studies and international relations at the CCS, confirms that the volume of compensation for floods has almost “tripled” in the last five decades, but clarifies that the number of insured goods is now almost three times greater .
Thus, although it notes an increase in the danger due to warming, it highlights that there is also increased exposure to those threatssomething that reflects another side of the problem: “the same thing that is causing climate change is causing the increase in damage: the level of development of today’s society,” he points out.
The economic cost of the climate crisis also worries the agricultural sector: the year 2021 has closed with 722 million euros in compensation paid to insured farmers and ranchers, “the second highest figure in the 42-year history of the Spanish system of Combined Agricultural Insurance”, they specify from Agroseguro.
The role of insurance
Despite these growing pressures on the sector, the NGOs that make up the coalition ‘Insure Our Future‘ (Securing our future) consider that the main insurers and reinsurers worldwide «have not adopted sufficient policies to guarantee that their activities do not support the development of carbon-intensive projects».
Its latest annual evaluation of the climate commitments of 30 international insurers concludes that, although most of these companies (including the Spanish Mapfre) have committed to excluding underwriting and investment in the thermal coal sector, today , “none of these insurers have a policy of exclusion of fossil fuels aligned with the objectives of the Paris Agreement”.
Quentin Aubineau, jurist at the International Institute of Law and the Environment (IIDMA), emphasizes the “Fundamental role” of the insurance sector in the decarbonization of the economy, since “without the insurance policies offered by insurers, carbon-intensive activities could not be carried out”but regrets that still “there are very few companies that have a policy – albeit a very basic one – of exclusion in relation to the oil and gas sector”.
–
