Climate change: a problem that insurance companies can’t afford to ignore

Climate change could have profound implications for property and casualty insurance companies due to the claims expected to result from an increased number of major weather events. What’s more, as major investors, insurers are faced with a likely double whammy from climate change: the value of their portfolios could also fall significantly if they have high exposures to the potential losers of climate change. In fact, EIOPA, the insurance regulator in Europe, has noted that more than 10% of European insurers’ investment assets are in sectors exposed to the effects of transitioning in response to climate change. But there could be many other losers across sectors as a result of the unknowable and unquantifiable effects of this fundamental shift.

The challenges resulting from climate change for insurers are diverse and come from multiple angles, but at the same time they are in a privileged position to be able to be part of the solution. First, they can choose which companies and projects to insure. Second, and as we discuss in this paper, they can effect change through the sheer weight of their investments while limiting their exposure to climate risk in the process.