Climatic Change Risks Poses Global Challenge as Nigerian Insurers Prepares for Climate Induced Damages


Insurers and their investors across the globe now see climatic change related risks as big challenge.

While many have continued to avoid the risks, others have gone into intense study on how best to improve on the risk and slow down frequency of claims coming from the line of business.

Other related risks, which claims are causing headache to insurers and their reinsurers especially at this period of insecurity and incessant civil unrest is Property and Casualty insurance.

Property and casualty insurance, or P&C insurance, is an umbrella term to describe a bunch of different types of insurance, covering personal property It refers to insurance of personal belongings.

Property insurance is also popular insurance policy for business owners and protects the business property in the case of vandalism and theft, covering the structure, and its contents.

Casualty insurance refers to insurance that covers the legal responsibility for losses stemming from damage to another’s property or an injury to another person.
It is a common insurance policy for small business owners since it protects a company from liabilities in the situation that a worker is hurt on company property.

The frequency of risk occurrence from these policies now positions it as businesses with frequent claims and as such not many insurers delight in the business at the current period.

This is why insurers are advised to prepare ahead of risks emanating from these businesses.

Here in Nigeria, Vice President Professor Yomi Osinbanjo recently advised insurers to prepare for the systematic nature of climate-induced damages.

“While there will obviously be opportunities for new insurance products and solutions, especially in the property and casualty segment of the business, insurance companies must also be prepared for the systemic nature of climate induced damage, with the possibilities of market failures and more system-wide destabilization, “he told Insurers at the recent 47African Insurance Organisation Conference held in Lagos.

According to the Vice President, the growing intensity of flooding and damage to vast agricultural acreages might have a knock-on effect on other areas of the economy.

Further slump in the economy is bad for everyone, even insurers, “he said.
At the west African sub regional level, the West African Reinsurance Corporation (WAICA Re), said it has Strategised to fight the effects of climatic change and other emerging risk across the African continent through sponsorship of an annual competition that would require people to provide practical solutions to ending these emerging disaster on the continent.

The corporation said it has taken the responsibility of funding the winning project.
The WAICA Group Chief Operating Officer, Dr Abiba Zakariah, said the corporation came up with the initiative as part of its Corporate Social Responsibility (CSR) to end drought, flood and deforestation across Africa, especially, West African region.

She stated that the projects proffered practical solutions that could be replicated across Africa, adding that WAICA Re was ready to continue to support such initiative with $100,000 annually to ensure that Africans saw themselves as solutions to African problems.

In the United States of America, the Bank of America in its recent poll reported that the potential impact from climate change on natural catastrophe property and casualty insurance and reinsurance claims is the biggest fear of investors.

At a recent conference, the Bank of America (BofA) equity analyst team asked where investors thought climate change related risks would emanate for the P&C re/insurance sector.

Almost 60 per cent cited climate change and how it could make catastrophe claims less predictable as their biggest fear for the space, which mirrors the concerns of many institutional investors in insurance-linked securities (ILS) that were spoken with.

As climate change becomes an increasing priority for the investor base that backs the global P&C insurance and reinsurance industry, while recent loss years have seen a heavy burden from perils that are either climate-linked, or thought to be influenced by climate change, the investor base is increasingly keen to understand how re/insurers are and intend to continue managing this risk.

The potential for claims to become increasingly uncertain and so more surprises to occur clearly has the equity investors backing major insurance and reinsurance companies worried.

The BofA analysts noted that, “Several insurers have commented that this is the 5th year of natural catastrophe losses exceeding industry budgets, which has seen climate change becoming an increasing focus for investors.”

According to them, if the ability to predict P&C claims costs related to catastrophes and severe weather is becoming harder due to climate change effects on their predictability, it will make setting catastrophe budgets increasingly challenging for the insurance and reinsurance sector.

“Whether climate related, or simply variability and cycles, it doesn’t matter. The fact is loss activity has outpaced many re/insurers expectations for a number of years in a row and investors are finding it challenging to believe some will ever get on top of this without more significant rate increases, it seems, “the analysts said.

The report further said while there are catastrophe models available and re/insurers or ILS funds will take their own views of risk on top of those, if the models are not able to keep up with the changes occurring, or the variability in weather losses, the industry is going to have a tough time calculating its capital and protection needs.


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