The Growing Challenge of Climate Change and Technological Innovation
Climate change is a global challenge that impacts the sustainable development of nations and societies. The frequency and intensity of a variety of risks are changing under this “new normal”. For the insurance and reinsurance industry, climate risk and the severity of catastrophes attributed to climate change, are normalising and bringing more challenges across underwriting, pricing, and risk management.
According to long-term observations, natural disasters are becoming increasingly volatile and difficult to predict with climate change, rendering existing risk, pricing, and decision models ineffective. This has generated great uncertainty for both the society and the wider insurance industry. At Peak Re, we account for climate uncertainties in terms of time and space within the risk assessment system, and utilise innovative methods to monitor general trends in climate change. We partner with research institutions to increase our awareness and prepare for the risks derived from climate uncertainties.
Insurtech and innovations in risk management are effective tools at narrowing risk and uncertainties. For instance, operating satellites to continuously monitor natural disasters and gain a deeper understanding of climate change. While such technologies do have their limitations, continuous efforts will help integrate technology with business and improving its usability and adaptability. Innovation is the first step towards progress, and new technologies will gradually mature and serve their purpose.
Climate change has and will continue to influence risk characteristics, nullify historical experience and increase pricing uncertainty in the process. While innovative technologies can, to a certain extent, assist our awareness and monitoring of the impact of climate change, a rational understanding and reasonable application of such advancements remains necessary. Overall, raising awareness on climate issues, as well as developing and applying new products and technologies, will benefit and improve the ability to manage risks in the context of climate change.