Climate change is making house insurance more expensive and harder to get. Health insurance could be next, as research shows extreme heat and wildfires are putting more people in the hospital.
Californians exposed to both extreme heat and wildfire smoke on the same day were at greater risk of being hospitalized for cardiorespiratory illnesses, according to a study published earlier this month by researchers at the University of California San Diego. In particular, the study linked higher temperatures to heart attacks and strokes and found that wildfire air pollution increased the risk of cancer and lung problems.
After the hottest year on record and increasingly extreme weather events, health insurers are battling to figure out how climate change is going to affect their business. The companies are building new models to reassess premiums, estimate risk and meet incoming climate reporting standards as coverage costs rise in a warming world.
“Part of the challenge we see with climate is historically we take a backward view to write these [insurance] models,” said Brian Kernohan, chief sustainability officer, private markets, at Manulife Investment Management. “Climate change is unique as there is no backward-looking side. So we are trying to predict what will happen in the future, which is much more difficult.”
The health impact of climate change is tough to estimate given it can be difficult to differentiate whether a death from a heart attack during extreme heat was caused by the mercury rising or other factors.
Insurers lack historic and sufficiently detailed data to build predictive insurance models, according to Steve Bochanski, U.S. climate risk modeling leader at accounting giant PricewaterhouseCoopers. “It’s definitely a challenge how you split out the effects of climate change and other factors [on health].”
There is a big opportunity for insurers that get ahead and assess climate change risks in the near term, according to Bochanski. He added that insurers building models that better incorporate climate risks could adjust their premiums or coverage—for example, offering parametric policies that pay out on specific weather events.
Health insurers are also looking for other ways to adjust to the trend. Wearable technology such as smartwatches could increase the number of data points available to insurers, Bochanski said. Introducing wellness programs can reduce the risk of poor health as well, he added.
For health insurers, climate risk is a new, more indirect worry, in contrast to home and auto insurers who are already raising rates in response to claims from more frequent climate-related events.
Still, climate risk is a priority for all insurers facing mandatory climate reporting in places such as the European Union, Singapore and Canada. Companies are now being asked to consider and report how climate change is going to affect their business and how they plan to mitigate it.
For example, Canada’s financial regulator—the Office of the Superintendent of Financial Institutions—introduced legislation last March that will soon require companies to include physical risks from climate change and energy transition risks in their standard financial reporting.
“This [climate reporting] is challenging, but it is beginning to be adopted at pace. And right now, it’s the time to get up to speed with new reporting requirements,” said Eleanor Reeves, partner at law firm Ashurst. “It’s just the beginning of the journey.”
Health insurers for now don’t seem to think profitability is going to be hit, because the groups most likely to be affected by climate change aren’t covered by insurance. “What we were predicting in terms of areas most at risk in terms of demographics are those from a lower-income socioeconomic background,” said Sarah Chapman, chief sustainability officer at Manulife.
Research from KFF, a health policy research firm, showed that climate change in the U.S. is more likely to affect poorer and historically marginalized groups.
“Due to historically-codified residential segregation in the U.S. including ‘redlining,’ on average, people of color have a higher likelihood of living in a census tract with higher summer daytime surface urban heat island intensity compared to their White counterparts,” KFF said in a report published last year.
“Low income communities and communities of color also suffer from tree inequity, increasing the risk of exposure to extreme heat and subsequent heat-related illnesses,” it added.
Geography is important to consider, according to Christoph Nabholz, head of research and sustainability at reinsurer Swiss Re.
Nabholz said that certain regions are more likely to be affected by extreme heat and added that major cities in India and China—with frequent heat waves and high pollution levels—were likely to see rising premiums.