Rising sea levels. Catastrophic storms. Rampant wildfires. The risks we face today are not ones we are necessarily used to seeing.
2022 was the second consecutive year in which the estimated insured losses totaled more than $100 billion; Hurricane Ian’s losses alone will be the second costliest insured loss on record, with damages between $50 billion and $65 billion. These numbers are staggering, and beg the question: could anything have been done to prevent the severity of these losses before they happened? It’s something insurance as an industry should consider more carefully as risks continue to change.
Yet today, insurers seem to be more focused on how to redistribute risk rather than rising to meet the challenges of today’s market, much to the detriment of the people we’re positioned to serve. As a result, insurance is becoming much more difficult to come by and more expensive for policyholders to secure, especially as climate change continues to alter the world as we know it.
An insurance response to climate change
On the latest episode of UNBIND with Bindable (watch now!), I sat down with Charlie Sidoti, the executive director of InnSure, an industry-funded nonprofit focused on fostering innovation in insurance and risk management.
InnSure’s sole purpose is rooted in its members' passion for developing innovative ways the insurance industry can better combat emerging risks, particularly focusing on climate change. With more than 25 years of varied experience in the insurance industry, the conversation with Charlie was very insightful, and I was excited to learn how he and his team are leaning into the issue of climate change and aiming to solve it from an insurance perspective.
The societal role of insurance
As Charlie pointed out during the episode, the insurance industry is slowly looking at climate change and the issues around it more closely. He says that the next “ten to… 40 years of insurance innovation will focus on the issues around climate change.” Still, that seems like a long time.
And yet, while others might be taking longer to address climate issues, InnSure is already focused on looking at insurance issues through the lens of what society needs and making sure insurance is effective enough to support the ever changing risks that individuals, enterprises, and communities are experiencing today.
According to Charlie, he and his team have identified four areas that insurance players should align with in order to address the effects of climate change moving forward. These include: closing the protection gap, accelerating the transition to a low carbon economy, incentivizing investment in community resilience, and implementing nature positive practices and systems.
Changing the mindset on emerging risks
The size and implications of the risks we’re seeing as a result of climate change sure seem like behemoths of uncertainty. This has caused a hesitancy within the market to insure against these risks. However, when we think back on the history of insurance, and how we got to where we are today, the industry has always stepped up to address even the most difficult risks. Insurance is equipped with unique capabilities for identifying, analyzing, and quantifying risk and we need to as an industry really lean into that important role.
As Charlie pointed out, 130 years ago when electricity was only beginning to penetrate the market, it was a cause of serious harm to humans, burning down buildings and electrocuting people. Insurers at the time couldn’t possibly insure the risk as it was. In response, they took charge of the situation, creating “underwriting laboratories” that helped mitigate losses stemming from electricity use, and in turn created the wide-spread adoption of electricity.
Similarly, insurers shouldn’t shy away from the tough task of modeling today’s emerging risks. Instead, they should be investing in new product development and novel approaches to address and mitigate risk. Our goal should not just be to simply sell more insurance to the people who don’t have it. Instead, we also need to mitigate risks to bring the losses down, and help people protect themselves in the first place. Today, the scope of the risk is so huge that the industry needs to avoid just pricing and transferring risk. Instead, as Charlie stressed, we need to do more on the risk mitigation side.
Next generation thinking
For the last few years, InnSure has teamed up with students at both Northeastern University and Syracuse University to research sustainability and clean tech. Charlie shared the unique insights this new generation of young thinkers has provided him and his team.
“When you talk to them about these things, they’re excited because they see that the industry can really do a lot here, and [they’re] very optimistic about…[solving] some of these climate issues.”
It’s clear to Charlie that the younger generation of talent is seeking more purpose when it comes to their careers. And as we know, insurance can give this to them - the team at InnSure is a prime example of passion and purpose! If we as an industry continue to have a focus on combating the effects of climate change, we will be positioned to attract talent that really cares about making a purposeful change in the world.
As Charlie reminded us in our podcast episode with him, fulfilling our duties as insurance providers to help protect people doesn’t stop because risks change. Instead, our jobs become even more important. As such, the insurance industry is primed to play a positive role in addressing climate change.
Rather than shying away from the challenges of today, we as an industry need to step up and address the most pressing risks that threaten our world. We must think innovatively and collaborate cross-functionally to think about insurance through the lens of what’s best for society, not just our profits.
Climate change isn't confined to a single zip code or region. What’s happening in our country doesn’t just affect North America; it affects the whole world. So while insurers must be invested in outcomes on a global basis, they can also start locally within their own communities. Insurance’s sole purpose is to provide security for people and communities; let’s not forget the important role we play.
Check out the full video recording of our UNBIND episode with Charlie below!
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