What the 6th International Climate Report Says to Insurers

Locke Lord LLP

The Intergovernmental Panel on Climate Change (IPCC) has been publishing assessment reports describing expected climate change impacts and risks since 1990 and has warned of the growing risks from climate change in each report.  With input from over 670 leading climate scientists from around the world, the IPPC Working Group II on Impacts, Adaptation and Vulnerability published on February 28, 2022 part of the 6th Assessment Report representing the scientific consensus on pending climate change impacts and risks.  The report includes several key insights for insurers:

  • Severe change is already baked in.  Even if global warming is limited to 1.5 degrees Celsius –  the goal of the Paris Climate Accords  –  increases in multiple climate hazards, such as flooding, extreme weather and death from heat exposure, are unavoidable.  Thus far, the world has experienced approximately 1.1 degrees C average warming since the pre-industrial era.  In an August 2021 report, the IPCC predicted that the world  is on track to reach 1.5 degrees C of warming by the early 2030s.  Various assessments estimate that the world will achieve approximately 3 degrees C of warming by 2100. The 2022 IPCC report predicts that exceeding 1.5 degrees C of warming will result in significantly increased risk after 2040.
  • Some of these risks are subject to insurance, such as flooding, health impacts, severe weather, increased fires, droughts and crop failures. The rate of change will increase as global warming increases and past events will no longer be accurate predictors of the future.

The report states that without limiting global warming to 1.5 degrees C, key risks to North America that are already occurring are expected to intensify rapidly by mid-century.

  • Coastal and urban flooding will become the dominant climate related risk to urban centers, displacing people, compromising economic activity, disrupting transportation and trade infrastructure.
  • Large wildfires will increasingly endanger lives, livelihoods, mental and physical health, property, key infrastructure, and economic activities and contribute to compromised air quality and municipal water contamination with multiple human health impacts.

The report states that there is a short window to lower emissions and undertake adaptation actions to avoid such risks but there are significant barriers to implementing emission reduction and adaptation programs.

Insurers can use an Environmental, Social and Governance (ESG) program to identify significant climate-related risks as part of their enterprise risk assessment process, using scenario analysis to address uncertainty regarding the rate and types of changes and develop a program to manage their exposure to such risks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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