Insurance industry is one of the cornerstones of modern-day finance. It accounts for nearly 7 percent of the global economy. The increasingly rapid and predictable climate changes have rendered the industry vulnerable to greater risk and uncertainly. And that means climate change is both a huge opportunity and a significant risk for this economic sector.
Insurance industry primarily relies on the predictability of things. Taking help from elaborate models, insurance gurus are able to define the maximum risk that they may have to take and thus, adjust the cost of their policies accordingly.
The problem with climate change is that no one has been able to correctly gauge the impact of climate changes over the coming years, not only for states but also for individuals on the social as well as personal level. Over the past few years, weather-related damages has increased exponentially. The recent Sandy hurricane alone wrecked a damage of $80 billion in New York and New Jersey.
Such damages, consequently, lead people to make use of their health insurance and other kinds of insurance policies. Whereas insurance industry has been conservative in extending insurance for natural catastrophes, it still can’t save itself from the related contingencies.
In light of this, the insurance industry is increasingly adapting to the threat of climate change. Not only is it trying to developer such models which can more accurately depict the impact of climate change in coming years, it is also trying to bolster the use of green energy so as to minimize the carbon footprint of us humans.
However, given the sheer scope of climate changes that are expected in the coming decades, the genie may be too large to be bottled by the insurance industry. Although the game promises big money for the industry if it is able to manipulate it, the problem is that there is absolutely guarantee that it really can.