Emissions control: A challenge for financial sector

The financial services industry is one of the groups most heavily affected by adaptation to climate change. Insurance companies are being hit by the increase in extreme climate events and by the resulting costs. Global reinsurers in particular will incur substantial additional costs in the coming decades. The damage caused in recent years gives an indication of this and the real impact is already visible: in 2005, the insurance industry recorded losses of approximately EUR 60 billion due to natural disasters. Hurricane Katrina alone was responsible for approximately EUR 20 billion of insured losses. 2007 also saw weather-related damage: Allianz alone faced estimated net claims of around EUR 350 million before taxes from winter storm Kyrill, which hit Europe in late January of this year.
The main task for insurers and reinsurers is to correctly forecast future losses and factor them into their premium models. In particular, this raises the question of which types of loss will no longer be insurable in future. On the one hand, this affects property insurers offering cover for public infrastructure and private property damage. Banks need to focus on assessing their credit relationships with customers. They must therefore factor climate-related risks into their rating tools and incorporate them in the appropriate risk categories (market risk, credit risk, liquidity risk, operational risk, etc). Not only must banks take into account expected damage and losses, such as increasing energy and commodities prices. Product-related requirements and opportunities, for example in the automotive industries, also affect their ratings.

Economic Times