How does climate change affect health and life insurers?

In the first half of 2023, insured losses from weather events amounted to $50 billion (about €46 billion), a quite significant increase compared to the annual average of $18 billion (€16.5 billion) over the past decade. Until now, the insurance industry was more focused on mortality, biodiversity loss and property damage, but the short-term consequences on life and health business have not been as deeply studied.

Moreover, the quantification of these risks is also a challenge in itself. This is explained in the report Climate Change: What does the future hold for health and life insurance?, recently published by The Geneva Association. “The impacts of climate change on health and life insurers have been modest so far but may escalate as climate events become more frequent and severe,” it states.

The impact of climate change on health can manifest itself in many ways: from the emergence of new illnesses to the aggravation of existing ones due to phenomena such as deforestation, which directly impacts the Zika virus, avian flu, Ebola or Lyme disease. Added to this is the increased incidence of respiratory and chronic illnesses, not to mention the impact on mental health.

“We cannot talk about the effects of climate change without talking about the major harm to human beings – to people’s physical and mental health. Extreme weather events cause severe damage to homes and buildings, but they also cause injury and death. Changes in climate conditions reduce biodiversity, impact food supplies and spread and exacerbate disease. The climate crisis itself has become a mental health issue. Working to better understand and reduce these risks will help keep them insurable,” says Jad Ariss, Managing Director of The Geneva Association.

The Geneva Association divides the risks to be considered for health and life lines of business into four categories:

• Acute risks: mortality, accidents and injuries, and health emergencies caused by changes in the frequency and severity of extreme weather events.
• Chronic risks: mortality and morbidity risks that emerge over a longer duration, resulting from slow-changing climatic trends.
• Transition risks: resulting from climate transition policies, technological solutions or market responses to mitigate climate change.
• Litigation risks: health-related legal challenges arising from the negative externalities of climate change.

The level of impact of these on the business may be mitigated by multiple factors, although there is consensus on one thing: the insured population will be better off in the face of these factors than the uninsured. However, the absence of data that measure the health impact of natural disasters and enable risk measurement is a major obstacle for companies, which need it to fill actuarial gaps and design the right product, explains the study, in which 41 representatives from 17 global life and health insurers participated.

In general, the impact of climate change on life and health insurance is currently “limited,” but there is some consensus among participants that this situation will change in the long term, especially with regard to insurability and the availability, structure and price of products.

The insurers participating in the study believe that risk reduction and prevention are the best ways to preserve insurability. It would also be advisable for companies to extend their data to more than one socioeconomic status to bring the sample closer to the general population, and get a better idea of the impact of climate change on the health of the population as a whole.

In addition, the report notes that the data on natural disasters is incomplete and that past experience “is an inadequate reflection of future needs,” given the dynamic nature of climate change and health. So addressing the problem of insurability would only be possible by taking data from all lines of business and sectors.

The Geneva Association offers three recommendations to life and health insurers to cope with the risks arising from climate change:

• Assemble data “prospectively,” i.e., taking into account certain variables that will have an impact on this problem in the future. Thus, insurers must take into account variables such as the percentage of elderly population in an area or the frequency of power outages, among others.

• Invest in innovation: parametric policies have attracted the industry’s attention in this regard, although these initiatives would require health and life insurers to homogenize risk to be able to quantify it in terms of volume as well as frequency. These companies will also have to keep an eye on regulation, as these are innovative approaches that could be affected by regulation.

• Play a bigger role in the policy environment: insurers can play an important role in studying the full spectrum of health risks related to climate catastrophes and implement simple and accessible messaging in their communications with customers. There is also a need to broaden the impact of these risks on the insurance industry itself.

Public-private collaboration is key to addressing climate change-related risks. The Geneva Association proposes the joint creation of a series of preventive measures and evacuation protocols alongside enhancing the training of health professionals specializing in diagnosing health issues stemming from climate change.

You can read the full report at this link.

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