Risk innovation of the year: Scor
Finalists: LCP, Standard Life
Climate change is one of the defining challenges of our time and one of the very few risks that it is impossible for insurers to diversify themselves against. How it will impact the insurance industry – and indeed the wider world – remains a topic of heated debate.
Luminaries such as Warren Buffett think it will be good for the industry, as it means there will be more disasters and therefore more insurance to sell. But others argue there is much uncertainty, and the future will not look like anything we have seen in the past.
French reinsurer Scor took the initiative to discuss these issues by organising a major seminar on climate risks, which became part of the UN's Paris climate change conference.
Experts from around the world in economics and climatology joined re/insurance professionals, actuaries and Scor's clients to examine the issue of climate risks and their insurability – and in particular to discuss decision making and insurability in a context of climate uncertainty.
While there is uncertainty on the consequences, Scor says this does not mean that the re/insurance industry is not implicated in climate change issues. "The industry is already paying for claims for which premiums do not exist," it argues.
In the short-term, Scor believes climate change will not be profitable for the re/insurance industry, and "even if there is an increase in demand, this does not mean that it is insurable. The true cost of climate insurance is too high for what people are ready to pay, leading to an insurance gap and potentially preventing this market from developing."