Escalating Costs of Climate Change Contributing to Higher Insurance Premiums

More frequent and intense catastrophic weather-related events have a direct bearing on the financial strength of property and casualty (P&C) insurance companies. While global natural catastrophe insured losses in the first half of 2022 (H1 2022) are higher than the average of the past 10 years, they are manageable for P&C insurers.

Key highlights include:

-- A number of record-breaking extreme weather events around the world have occurred in H1 2022 but the impact on the profitability of the global P&C insurance industry has been mitigated by the insurers’ response to climate change.

-- Property insurance premiums have been consistently increasing, in all parts of the world, since 2019; this trend is expected to continue, driven at least in part by the changing climate.

-- Historical loss experience may not be a good predictor of future insured losses, and, therefore, to take into account climate change, the assumptions underpinning insurers' models should be reviewed.

-- Unless properly mitigated, worsening climate change trends and impacts may negatively pressure the financial strength rating of P&C insurance companies.

“DBRS Morningstar considers insurers' risk management responses to climate change, including annual premium re-pricing and robust reinsurance programs, adequate in mitigating short-term profitability implications. However, climate model risks are significant, in part because greenhouse gas emissions are expected to have a greater impact on the climate and because they are difficult to predict.” Said Nadja Dreff, Senior Vice President, Insurance.