2023 Overview of preventives measures on climate risks

Wavestone presents its first edition of the overview of climate risks preventive initiatives and its second one of prevention for the insurance sector.

Environmental and societal developments, characterized by the increase of climate-related claims coupled with stronger customer demand towards their insurers in terms of quality of service highlight the need for insurers to put prevention at the heart of their value proposition.

Prevention is an efficient tool to better anticipate and narrow down the risks. Regarding marine submersions, the French public reinsurer, Caisse Centrale de Réassurance, estimates that an investment of €1 in prevention would allow to avoid €3 in subsequent damage. Insurers are on the front line, dealing with the growing impact of extreme weather events, both in terms of frequency and severity.

Our overview is part of three studies on prevention; the first part was related to P&C risks and was published in Decembre 2023. This second prevention panorama offers a detailed vision of initiatives carried out by insurance players to reduce claims and costs on the scope of climate-related events. It highlights market trends, good practices in the area and the innovation efforts put in place by insurers.

This first edition of the overview of climate risks preventive measures covers actions targeting professionals and individuals between 2015 and 2023 on which French insurers have communicated. Nearly 50 insurance players (bank-insurers, insurtechs, mutual insurance company, etc…) were analyzed. Reinsurers are not included. These actions tackle 16 climate risks including floods, drought and meteorological events such as storms, snow and thunderstorms.

Faced with the challenges of climate change, insurers are increasingly adopting a proactive approach to manage climate risks. There are many objectives: to develop a risk culture, to evaluate the risk, to offer tailored solutions and services to their customers and make them aware of their responsibilities by encouraging them to take preventive measures.

Our study revealed five trends:

1. Preventive measures primarily focus on the climatic events that incur the highest costs for insurers. Storms and floods are the most targeted, accounting for 48% of costs linked to climatic events and 56% of “CatNat” decrees in France between 1989 and 2018. However, global warming is forcing insurers to adapt to give greater prominence to emerging climatic events, in particular drought, whose claims burden is set to almost double by 2050.
2. As climate risk reaches insurability limits, insurers commit differently in prevention. 79% of public limited insurance companies and 77% of brokers offer preventive actions against climate risks compared to 55% of mutual insurance companies. Players such as Covéa position themselves on several steps of prevention with actions aimed at diagnosing the risk, alerting, advising and informing the policyholders and equipping them.
3. While most of the identified actions are aimed at developing policyholders’ risk culture through various information media, the real challenge for insurers lies in transforming this informative prevention into effective prevention. Only 6% of initiatives are aimed at equipping customers (2.5%) and supporting them in diagnosing the risks to which they are exposed (3.5%).
4. Individual policyholders benefit from more abundant prevention measures (78% of identified actions) albeit still generic, minimally personalized, and straightforward to implement. In contrast, preventive measures tailored for professionals address their specific needs for resilience, business continuity, and security.
5. Furthermore, partnerships serve as crucial conduits to realize prevention strategies. Whether between insurers or in collaboration with public or private sector stakeholders, these partnerships drive innovation. Notably, 60% of innovative actions and over three-quarters of initiatives aimed at risk assessment or client empowerment are achieved through such partnerships. Examples include Pro BTP’s connected bracelet and AXA’s wildfire prevention service, developed in conjunction with KAYRROS.