Very. Back in 2015, our CEO shook up the sector by suggesting that a 2-degree Celsius increase in temperature might be insurable but a 4-degree Celsius increase globally certainly would not be. A 4-degree temperature rise would likely increase volatility in weather risks that, in turn, would raise uncertainty for insurers in their risk pricing which could lead to increased pricing buffers. This could make insurance prohibitively expensive for certain risks. From that angle alone, it's critical that insurers take climate change seriously.
We recognize that climate change is modifying the patterns of risk. You can't simply rely on backward-looking historic data and statistics anymore. We are incorporating physical models to assess shifts in climate and we also use detrending methods as well as emphasising more recent historic data. These techniques help give us a better understanding of the risk and how it is evolving and therefore allow for more accurate pricing of the risk. It requires looking at a range of perspectives, models and data to understand how a portfolio will be impacted.
I think some of the more recent regulatory changes have been incredible. On the one hand, they force the industry to think seriously about the volatility of the risks inherent in climate change. At the same time, they also force corporates to assess their own risks and that, in turn, should drive significant demand for solutions like weather risk-transfer structures.
Certainly. I think we are in a great position to help our clients — individuals, corporates and governments alike — understand and reduce their climate-related risks. In some cases, that might be through working directly with governments to improve risk analysis. In others, it might be rewarding clients who demonstrate risk-reduction behavior. I think insurers could also be better at using the asset side of their balance sheet to influence how development is achieved especially through climate-resilient infrastructure investment in emerging countries.
I think the most important action insurers can do is to start engaging in existing development and climate-focused initiatives. I am very supportive of the projects currently underway within organizations such as the Insurance Development Forum which is actively plugging climate risk model gaps, launching sovereign climate insurance programmes and driving climate-focused investment. I also think insurers should be putting a lot more time towards educating themselves, their clients and their potential clients about the risks associated with climate change. It's not about scaring people, but it is about providing a reality check.
Karina leads the development of new public sector business globally for AXA Global Parametrics, based out of Paris. She was previously at the African Risk Capacity, a catastrophe risk pool for African governments.