In the latest risk report from World Economic Forum (WEF), extreme weather is the highest ranked global risk in the short term. In the medium and long term it comes in second place, right behind the interlinked risk of not acting on the climate challenge.
In other words, extreme weather is considered more critical than for example the risk of a new pandemic, cyber attacks, debt crisis, geopolitical instability or the effects of increased social differences.
Increased extreme weather events leads to an increase in both frequency and severity of losses. Münich Re estimated the cost of global natural perils for 2020 at 210bn USD.
Extreme weather also gives rise to a growing carbon footprint through increased material and energy usage when things that have been damaged are repaired. In a sense we’re dealing with a chicken and egg situation: climate change leads to more extreme weather but the repairs from losses lead to more negative climate impact – and the spiral keeps on going.
This is of course an exaggeration because the magnitude of the climate impact from fixing what is broken following extreme weather events is far from being the largest contributor to climate change. It is, however, definitely relevant when it comes to climate actions.
This raises the following interesting question: whose value chain and scope 3 greenhouse gas (GHG) emissions should we tap into for addressing the carbon footprint that arises from extreme weather related repairs? And most importantly, who should pay for minimizing that carbon footprint?
There is an emerging trend where everyone takes responsibility for their full value chain, even if there is a risk for overlapping climate actions. The point is that there’s still enough for everyone to do.
Thus, one could see insurers, reinsurers, and state-run natural perils protection schemes take a stab at how to ensure that the negative climate impact from the extreme weather event itself is minimized.
Tools such as sustainable claims settlement with greener repairs, correct pricing of carbon risk, and funding of carbon removal projects could be included in today’s (re)insurance schemes.
We can’t wait to see when the first net-zero natural perils insurance covers will be launched!
Featured image credit: Nasa @ Unsplash