91% of insurance executives see climate risk as a threat

The issue of assessing and managing climate change risk, both physical and transitional, has become increasingly important in the insurance industry, according to a new Conning Focus Report, “Climate Risk: An Imminent Threat to Business”, released October 18.

Potential impacts of climate change range from extreme weather events to changes in ecosystems and human livelihoods. The growing threats of extreme weather and climate tipping points create risks to financial markets and are causing increasing concern about their impact on the insurance industry, the report notes. 

In addition to the physical risks associated with climate change, recent Securities and Exchange Commission filings have changed the disclosure rules for businesses, leading to greater uncertainty and concerns surrounding transitional climate risk.

The report summarises findings from a survey of insurance executives. Conning’s Insurance Research and Risk Solutions groups partnered to conduct a survey of insurers to gauge the sentiments of industry executives on climate risk. 

In this survey, 91 percent of respondents expressed “significant” concern regarding the impacts of climate as a physical and transitional risk for their businesses, with the remaining 9 percent acknowledging at least minor risks.

“Sixty percent of executives indicated plans to invest in tools, vendors, data, and underwriting practices to enhance climate risk assessments. The survey found that smaller insurers—those underwriting less than $5 billion in direct premiums, accounting for 53 percent of the market—are a significant segment seeking additional support in managing the challenges posed by climate risk,” said 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.

“Property lines are short-tailed, and a 105 to 106 percent combined ratio is not sustainable.”

“During the period 2017 to 2023, the homeowners insurance and commercial property lines together reported $935 billion in loss and expense against $882 billion in net premiums earned (~$52 billion in underwriting losses). 

“While 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 percent combined ratio is not sustainable,” said Scott Hawkins, a managing director and head of insurance research at Conning.

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