Climate change – what it means for your insurance premiums

Extreme weather events continue to ravage communities around the world, with devastating bushfires and floods across Australia highlighting the risks in our own back yard, and hurricanes and fires terrorising North America. The rest of the world is not immune, either.

The losses have been enormous. According to Munich Re, climate-related insurance losses have hit more than US$100 billion a year globally, presenting challenges for governments and businesses alike while underlining the need for relevant and affordable insurance to mitigate risk, especially in relation to physical and liability risks.

For business leaders, tackling this insurance issue has become an important part of their due-diligence role.

Stress-test your enterprise
With more catastrophic events appearing to be inevitable, businesses face the prospect of spikes in insurance premiums or, worse still, not being able to get cover at all if they are deemed to be too great a financial risk to insurers.

So, it is crucial for businesses of all sizes to stress-test their exposure to climate risk to ensure their policies are relevant and that they match the latest market offerings. Over time, business conditions change and insurance may need to change with it.

The starting point to protect your business is to conduct a comprehensive review of environmental risks and insurance policies. Do you have cover for major weather events, and is it fit for purpose if an event does actually occur? To spread out their risks, insurance companies typically sell a diverse range of policies that cover a wide variety of scenarios, yet different businesses will always have different needs. This means a one-size-fits-all insurance approach is unlikely to be adequate.

For example, climate change presents particular challenges as many insurance policies are written on a one-year basis, whereas business and property owners need to assess risks that could happen over the lifetime of their operations.

Given such factors and, depending on the scale and complexity of your business, an insurance review can become a messy process for the uninitiated. This is where engaging with a broker or an external insurance specialist makes sense in so much as you can explore the best insurance offerings in domestic and international markets with greater certainty.

The role of advisers
Climate risk insurance covering areas such as property and casualty can help protect businesses from the ravages of extreme weather events. Given that insurance protects people and properties, it is no understatement to suggest that insurers and brokers have a significant responsibility to their clients when it comes to risks faced due to climate change.
Those threats are becoming more pronounced, leading to possible scenarios whereby insurance becomes too expensive for some businesses or making it impractical for insurers to provide coverage. The fallout from recent flood events in cities such as Lismore, NSW, and Gympie, Queensland, are a reminder of this dilemma.

As climate risks become more significant and immediate for businesses, the role of the broker will become more and more crucial as they educate and help their clients consider all forms of risk, climate risk included. Talking to clients about their strategies to mitigate climate risk, and bringing insights and research to the table, is essential.

Although an experienced broker can help you ensure that you maintain an optimal insurance program that factors in issues such as climate risk, the challenge in many cases is to find a broker who truly understands your business’s specific requirements and who can deliver the best possible on-budget insurance policy.

An independent insurance consultancy can help businesses implement and manage a competitive tender process for the provision of insurance broking services. Such a check can reveal any insurance shortfalls and give you confidence that your broker, your policies and premiums are appropriate.

The one apparent certainty in the years ahead is that climate-related risks are going to keep rising for businesses and communities. In combatting that danger, insurance will be an increasingly vital tool – if you make the right policy choices.

Seeking assistance from experts to ensure that you get the most appropriate cover at the right price is simply a smart business move.

For more details on mitigating climate risks and finding the best insurance deal for your business, speak to one of our experienced insurance experts.

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