Climate change puts insurance to the test

Monte-Carlo (Principality of Monaco) (AFP) – “So far, it’s holding.” This sentence pronounced by the financial director of Axa to AFP sums up the ambivalence of the sector, meeting until Wednesday in Monaco to discuss tariffs, as to its ability to face climate change.

This year, France is expected to experience its worst year on the weather front since the 1999 storms, with $4.3 billion in damage between January and July, already more than the annual average of $3.5 billion between 2017 and 2021.

“It’s not just a problem for France,” Robert Mazzuoli, analyst for the Fitch rating agency, told AFP, citing “Australia, which has experienced a lot of flooding” and “a record level”. of disasters.

“We could also mention the floods in South Africa and the drought in Brazil”, adds his colleague Manuel Arrive.

Taken individually, these so-called “secondary” perils do not cause massive damage, but it is their multiplication, more than that of major disasters, that is worrying.

According to the reinsurer Swiss Re, whose business is to insure insurers, natural disasters generated 72 billion dollars in economic losses in the first half, including 35 billion for insurers and reinsurers.

It is certainly a little less than the 40 billion in the first half of 2021, the most expensive since 2011 and the earthquakes in Japan and New Zealand, but the trend is not good.

Climate change, by sparing no area, forces reinsurers to compensate in all regions in the same year, which weighs on their profitability, recently pointed out the Association of Reinsurance Professionals in France (Apref), which is concerned about a continuous increase in the number of disasters.

Disasters… or opportunities?

According to France Assureurs, the bill for climatic claims in France over the period 2020-2050 could double compared to the previous 30 years and reach 143 billion euros.

Faced with this increase, which will not be confined to France, some reinsurers, such as Axa XL, are reducing their exposure, judging that the premiums paid remain insufficient despite recent increases.

Others, on the contrary, see “business opportunities”, as Joachim Wenning, chairman of the management board of Munich Re, expressed it last month. According to him, the world’s leading reinsurer “is in an extremely solid position to manage the climate-related risks” with “expertise” and “ability to diversify risks”, “highly demanded and attractively rewarded”.

For several years, reinsurers’ prices have been increasing, prompting insurers to pass this increase on to customers, and the trend will continue, according to industry observers.

Some voices plead for the tax which finances the “Natural disasters” regime in France to be raised from 12% to 18% in order to ensure its sustainability.

But this proposal annoys Bertrand Labilloy, managing director of the public reinsurer CCR. “We are not going to be content to suffer disasters and pay. Because it is not only material damage but also human lives”, he defends.

So he insists on prevention.

An opinion shared by Alban Mailly de Nesle, who cites the case of Fukushima: “the protective wall of the (nuclear) power plant would have been 50 centimeters higher, we would not have had the problem we had”.

“Measuring the height of the Rhine”

Another example: thanks to prevention, Hurricane Ida in 2021 cost insurers four times less than the devastation of Katrina, which occurred 16 years earlier, despite an equivalent intensity.

The criteria for compensation in the event of natural disasters could be reviewed: the federation notably evokes the idea of ​​excluding purely aesthetic damage to buildings in the event of drought.

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In order to better cover climatic upheavals, parametric insurance, which compensates when certain predefined conditions are met, and not according to the damage observed, is also developing.

For example, German manufacturers depending on the Rhine to transport their goods can see their activity interrupted in the event of drought. The latter “have no solution with conventional insurance, which will not send an expert to measure the height of the Rhine in Cologne”, explains Antoine Denoix, managing director of Axa Climate, a subsidiary of the dedicated insurance group. climate adaptation and present in some forty countries.

Whereas with parametric insurance, there is “a payout trigger” when the water level drops below a certain threshold measured by sensors.

The advantage: it is cheaper for the insurer, who does not send anyone to the field, and the insured is covered against a risk previously not covered – even if the compensation does not correspond precisely to the damage suffered .

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