Climate change is clearly causing a dramatic increase in natural disasters. When thinking about effects of climate change we often think of hits to agriculture, travel, energy, mining, and other industries facing a direct impact from rising temperatures. One that is sometimes overlooked is the insurance industry, yet it faces compounded risks from all industries. Allianz, the largest insurer in Europe, expects climate change to “increase insured losses from extreme events in an average year by 37% within just a decade” . In fact, “Munich Re has done studies estimating that […] extreme weather events led to more than $500 billion in covered losses between 1980 and 2011 “. What is difficult about the threats insurance companies face versus those faced by companies in other industries is that solutions aren’t actually in their direct control—the companies and individuals they insure need to take actions to combat climate change.
Common solutions for combatting these risks focus on risk minimization, research on solutions, and loss prevention. With risk minimization, a focus of US insurance companies, companies stop insuring entities that are deemed too risky. For example, Allstate stopped renewing and even cancelled policies for many Gulf Coast states due to major losses (wiping out 75 years of profit) caused by recent hurricanes. They “cut the number of homeowners’ policies in Florida from 1.2 million to 400,000 with an ultimate target of no more than 100,000” . In the Proactive approach, companies spend on clean energy opportunities like “AIG’s Global Alternative Energy Practice, Allianz’s Climate Solutions, Aon’s Agri-Fuels Group and Chubb’s Green Energy Team” . Loss prevention is akin to a combination between risk minimization and the proactive research; it focuses on mitigating risks given our current situation and includes options from improving disaster resilience of entities, energy efficiency programs, green design of buildings, and trading of carbon emissions.
Allianz created Allianz Climate Solutions to deal with these changes. They address the three approaches mentioned above with their “Anticipate, Care, Enable” strategy.
To mitigate financial risks, they “anticipate” the increase in claims caused by climate change and adjust policies and investment decisions accordingly. Allianz plans to work with 37 environmental, social and corporate governance (ESG) criteria to make more informed decisions in addition to divesting from coal. This will help in two ways : 1) Allianz’s financial investments will be diversified and therefore less at risk since they take climate change risk into consideration 2) divesting from investments that accelerate climate change will hopefully have a positive impact on the environment as those companies find it harder and harder to find funding due to companies like Allianz pulling out funds.
Additionally, Allianz “cares” about the environment and takes proactive steps to slow down climate change. Due to Allianz’s far reach of insurance policies, they have been able to gain insights from researching the businesses of their customers to better understand causes of and solutions to climate change. We can see a particular instance of this is in Brazil where Allianz conducts research on “the change of rainfall patterns and extreme weather events influence [on] crop yields” . This research helps those Allianz insures and in turn Allianz themself.
Finally, they work to “enable” individuals and corporations to take actions to prevent losses that are a result of the climate changes we already face. Not only has Allianz made solutions available to lower emissions that other companies can take advantage of, but they have also put this into practice with their own business. Despite having been “carbon-neutral since 2012”, Allianz still strives to lower their carbon footprint .
No longer making money off of certain clients, insurance companies are highly incentivized to take action against climate change. While Allianz is making a lot of progress in combatting climate change, they can take their research a step further by incentivizing those they insure with lower rates if they follow certain guidelines. Similar to how car insurance companies like Progressive alter rates based on ones driving ability, Allianz can financially incentivize their clients to make changes they might not have otherwise. With climate change on the rise and profits of insurance companies dropping, they need to do everything within grasp to incentives companies to lower emissions.