ACA Insurance Day 2024 : The impact of climate change on the insurance sector

At the 12th Edition of the ACA Insurance Day, the Roundtable on “The Consequences of Climate Change on the Insurance Sector” Captivated Participants

Moderated by Philippe De Longueville, Head of the Belgian Branch at Gallagher, the panel brought together renowned experts: Valérie Scheepers, Director at the Commissariat aux Assurances, Rachel Delay, Group Head of Sustainability at Convex, and Thierry Langreney, President of the NGO Les Ateliers du Futur and author of a report on the resilience of the sector to climate challenges.

The Growing Impact of Climate Risks

The panelists opened the debate by discussing the acceleration of extreme climate events, which are becoming increasingly costly for insurers. Valérie Scheepers explained that, in Luxembourg, while insurability is not yet a critical issue, the support of reinsurers remains essential to absorb losses from natural disasters. The 2021 floods in Luxembourg served as a starting point to illustrate the need to strengthen prevention and awareness. Insurance penetration rates vary significantly between countries, with some citizens still perceiving little value in insurance, often due to the systematic intervention of welfare states.

Authorities, in collaboration with institutions like EIOPA, have initiated measures such as risk mapping to identify protection gaps. However, questions remain: Is the financial protection offered to the population sufficient? These initiatives, while in place, do not always gain the necessary support, even in the most exposed areas.

Public-Private Partnerships: A Key to a Sustainable System

A key highlight of the panel was the crucial role of partnerships between insurers and public authorities in maintaining a sustainable insurance system. Thierry Langreney emphasized that in many countries, including France, purely private models are insufficient to ensure universal coverage for climate risks. He advocated for hybrid public-private mechanisms, citing the Spanish system as an example, which allows for the pooling of costs between the most and least exposed policyholders.

Rachel Delay emphasized the importance of preventive measures and modeling tools to reduce risk exposure. She also mentioned the role of climate premiums, increasingly influenced by the uncertainty surrounding extreme weather events.

The Challenges of Evolving Risk Management

Discussions also highlighted the necessary evolutions in risk management practices. The ORSA (Own Risk and Solvency Assessment) report has proven to be a central tool for insurers to better anticipate the long-term impacts of climate change. Valérie Scheepers detailed how this exercise, though complex, enables companies in Luxembourg to gradually integrate these issues into their strategies.

Rachel Delay added that Convex uses specific frameworks for assessing climate risks to anticipate short-, medium-, and long-term impacts, while also identifying opportunities related to the energy transition.

Towards a More Inclusive and Sustainable Insurance Model

A strong message from the roundtable was the importance of making insurance accessible to all, including in the most exposed areas. Thierry Langreney stressed the need for greater state involvement in subsidizing premiums in these regions, while establishing fair pricing mechanisms. This approach would prevent certain territories from becoming uninsurable, as is beginning to occur in California.

This panel underscored the colossal challenges the insurance sector faces in light of climate change. Through enhanced prevention, public-private partnerships, and adapted risk management practices, the speakers outlined key steps for a necessary transformation to ensure the sustainability of the insurance system.