S5 Ep.5 How climate risk is reshaping insurance

Jessica, you work at the point where climate science meets financial reality.

From where you sit, what is climate change doing to the fundamentals of insurance?

It's a big opening first question.

Probably not one that's easy to answer in a nice, succinct sentence.

But in some ways, it's massively changing it.

And in others, you wouldn't notice it was happening.

It's an interesting dynamic in the world of insurance because there's a fundamental part of insurance where most insurance policies are written on a one-year basis.

So each year, an insurer re-looks at its risk and its portfolio and then re-evaluates that next year.

There isn't necessarily a seismic shift in change because it's an incremental change that's happening year on year on year.

There are certain areas in certain sectors where it's having a big impact and there are a few big changes.

But maybe I would like it to have a bigger impact than it's almost having and be higher up the conversation.

But other things, in particular in recent years, higher inflation, COVID just before that, and now more recently geopolitical ones, are actually what is more front and center of many insurers' minds compared to what climate change risks could be because they're seen as something that you can reprice in and refactoring in a year's time.

There are lots in the industry calling for more to be done, but yeah, it's actually a very interesting dynamic.

Okay, that's really interesting.

So this sort of year-level view, I guess ultimately what you're saying is that you're only taking on a year's worth of risk.

That might be seen to dilute the problem to a certain extent.

In five years, I know I've got a problem, but right here, right now, yeah, I can live with the next 12 months.

I think it's important to break it down into the different types of risks that insurers are facing.