Climate Resilience – Sector Watch 20 September 2019
The 2019 World Economic Forum Global Risks Report lists extreme weather, climate-change mitigation/adaption failure, and natural disasters as the three most likely and impactful global risks. In 2017, overall losses from world-wide natural catastrophes totaled $350 billion, with $24 billion in losses due to the California wildfires alone in 2018.
Although there are significant risks, this new environment also represents an opportunity, with estimates putting the climate resilience economy at around $316 trillion. Recent reports highlight increasing demand for climate-related opportunities, totaling $2 trillion, with $236 billion through new solutions to adaptation needs.
Large-scale climate resilience and adaption strategies are hard to implement in the context of short-termism in political and business cycles. However, many cities have begun to implement “climate resilience strategy” documents, in order to protect both the infrastructure and civilians. In 2013, the EU published its strategy on adaptation to climate change and aims to foster the development of adaptation technologies leveraging a €3.4 billion budget during its 2014-2020 funding period.
Due to the increasing frequency and risk of extreme weather events, traditional insurance products are often too expensive in high-risk areas. Innovation with sensors and geospatial data is enabling better risk profiling and risk mitigation measures to be put in place – allowing insurers to more accurately underwrite risks in more at-risk areas. Parametric insurance products are an example of climate-related solutions, allowing victims of extreme weather events the chance to quickly implement recovery measures.
Insurance incumbents have begun to engage with innovators to improve their underwriting of climate-related risks, with both remote-sensing and on-site sensor-based solutions being developed to create more accurate profiles. Remote-sensing solutions can rapidly scale due to low upfront costs of hardware, but ground-based sensors can still currently provide higher quality and more consistent data on climate-related threats. With the development of these new data sources, specialty climate-related insurance products are being created for broader areas like flood risk and business disruption.