A reinsurer underwrites a risk that is initially borne by a different party, thereby transferring part of that risk to the reinsurer. I would say it is a safe assumption that the (re)insurer would like to limit the risk of the (re)insured assets and that this risk is reflected in the premium paid by the owner of the risk. Correct risk assessment is crucial for a fair valuation of the premium.
Climate change is becoming a wild card in the assessment of risk, and this wild card will become more prominent in the coming decades. Global warming is already increasing the risk of regular floods, flash-floods, droughts and soil erosion (and the impacts that come along with this like reduced food security). In the end, these risks might become too high for a (re)insurer to accept, thereby reducing the amount of acceptable contracts for (re)insurance companies and reducing the amount assets in high-risk areas that can be insured, negatively impacting the societies that live there.
Currently there seem to be two ways in which (re)insurers try to mitigate for this:
"Insurers are responding to the global-warming threat in two ways: By developing and selling novel kinds of insurance for clients who want to hedge their climate exposure; and by pressing policymakers in the United States and around the world to enact carbon-emission limits that are aggressive, detailed, and long-term."
(https://newrepublic.com/article/123212/who-will-pay-climate-change?hootPostID=d70deb6b3e2b5eb5db7d359f2351bf6d referenced by Swiss Re here: https://twitter.com/swissre/status/662042410504036352)
I would argue that Swiss Re and other (re)insurance companies can also use a third way to respond to the threat of global warming, climate change and global biodiversity loss. I am talking about the standard inclusion of Natural Capital accounting in the assessment of risk and by pushing clients harder to use Nature Based Solutions to mitigate risk. These two elements could and perhaps should be included in every contract where they could be applicable.
The first steps towards this are already being taken and the actions of Swiss Re together with the IUCN are a clear proof of that (see: http://www.swissre.com/rethinking/climate_and_natural_disaster_risk/Low-tech_ways_to_cope_with_climate_risks_in_the_Caribbean.html). However, merely suggesting and facilitating the use of Nature Based Solutions to mitigate specific risk is not enough. Requesting a full account of the Natural Capital impact of a client (for example a city or region) will give a comprehensive view of the negative and beneficial effects that a client exerts on its surroundings. This would improve the risk assessment associated with a contract and would show multiple ways of mitigating the risk as well through Nature Based Solutions. The (re)insurer could then adjust the premium paid on the risk, thereby making it financially beneficial for clients to improve their impact on the Natural Capital that they affect.
In effect the actions taken by the client, and potentially financed by the reduced premium, will in return help mitigate climate change (for example through carbon capture in peatland) and biodiversity loss (by providing areas that support species and ecosystems). It would also be attractive to the bottom line of (re)insurers as the risk of large scale (and uninsurable) natural disasters like floods and droughts occurring would be lower. Everyone is a winner.
Category: Food security: Farming, Climate/natural disasters: Climate change, Disaster risk, Drought, Floods/storms, Pollution