As the risk transfer industry continues to adapt to the changing climate, Swiss Re is in the process of passing climate-related price increases on to its clients, according to the firm’s Chief Executive Officer (CEO), Christian Mumenthaler.
In an interview with CNBC at the 2020 annual World Economic Forum (WEF) in Davos, Mumenthaler discussed the role of the reinsurance sector in light of the changing climate and related exposures.
World leaders and company executives from around the world meet in Switzerland against a backdrop of unprecedented bushfires, droughts, and flooding events in parts of the world.
Unsurprisingly, the climate is a key focus of the 2020 WEF, and, in light of the industry’s extensive risk knowledge and experience, executives from the insurance and reinsurance universe often play an important role in discussions throughout the conference.
For re/insurers, factoring climate risks into pricing has been an ongoing debate, and Mumenthaler explained to CNBC that although people were sceptical about climate change for a very long time, change is now evident.
“On the scientific front there’s less certainty around hurricanes, but there’s actually consensus among the scientific community that we see more drought, we have more hail and more floods etc.
“So, we’re in the process of passing these on, these are yearly renewable contracts and so pricing is adapted from one year to another,” said Mumenthaler.
Adequately explaining how climate change is accounted for within both underwriting and pricing decisions is a challenge for the space, and as the world’s understanding of climate change and its influence on the severity and frequency of catastrophic events evolves, it’s unlikely the challenge will get any easier soon.
Of course, and as highlighted by Mumenthaler, contracts largely renew on an annual basis so an important part of this is the ability of the market to reprice at renewals.
“I think generally we have seen an increase in losses, mostly in bushfires, droughts and floods. So, we have to adapt prices and we have to talk about it to the world,” said Mumenthaler.
Adding: “Our job is to take out volatility, but climate change is really a trend. So, things are getting worse, but you cannot insure a trend, it is really something to be borne by society and therefore for a long time we’ve been warning around that trend as we clearly see it in the data.”
Ultimately, he explained, the purpose of Swiss Re is to make society more resilient and the company and broader industry has a responsibility to help families recover post-event.