Severe storms with thunderstorms, floods, droughts: climate change is increasing physical risks for companies worldwide and across all industries.
Extreme weather events threaten not only operations, but also the availability of insurance to cover these risks. Companies such as insurers are therefore currently facing the major challenge of strategically realigning themselves.
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- Traditional insurance models are under pressure as the frequency and severity of claims increase and insurance costs rise.
- Critical infrastructure sectors such as energy and water supply or data processing, in turn, require targeted adaptation measures. Companies must proactively invest in modernising their infrastructure and organisational resilience in order to reduce their risk profile and maintain insurance coverage.
- Insurers, in turn, are called upon to no longer be passive risk carriers, but to actively shape their offerings for the future with coordinated risk consulting and innovative insurance products such as parametric insurance.
Your expert for questions
Christoph Schellhas
Financial Services Sustainability Lead at PwC Germany
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Strategic adjustments sought for future-proof insurance companies
In Europe, only 26 percent of damage caused by extreme weather events is currently insured – and this gap is growing. Both companies and insurers must take countermeasures. The good news is that there are concrete recommendations for action.
Reprioritise risk management
Company leaders are called upon to consider climate risks as part of their risk management and to document the corresponding adjustments and progress transparently. Scenario-based assessments of climate risks help to understand the various risk dimensions and develop targeted adjustments.
Building on this, companies should review their current risk management and insurance strategies. They can discuss these in direct dialogue with insurers and in cooperation with public actors and municipalities, thereby jointly improving insurance conditions.
Insurers as trailblazers
Insurers, in turn, are called upon to develop innovative products that motivate policyholders to step up their adaptation measures and implement climate-resilient business models. Through explicit risk advisory services, insurers can support and specifically promote companies in their transformation.
In addition, they should play a more active role. Participation in initiatives to set standards, for example through the exchange of best practices or the development of uniform criteria for climate resilience, can trigger change in the industry. But supporting political measures also helps to strengthen the future availability of insurance and make the industry more sustainable.
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„Future Insurance Availability for Businesses“
Identify and manage insurance risks
- Availability of insurance – a mammoth task
- Energy supply
- Water supply and sewage systems
- Inland waterway transport
- Data processing and hosting
Availability of insurance – a mammoth task
As weather events become more severe, damage and insurance premiums are rising. Insurance coverage is becoming a financial burden for companies. And insurers are questioning the sustainability of their models as reinsurers tighten their insurance terms and conditions for secondary peril events. They need to rethink their strategies and make adjustments to remain insurable.
Energy supply
The sector is vulnerable to convective storms that damage transmission lines or substations. Insurance policies generally cover property damage and power outages, but with limitations. Energy companies should therefore protect their assets by strengthening infrastructure, using advanced forecasting technologies and implementing robust organisational strategies. Close communication with insurers remains essential for effective risk management.
Water supply and sewage systems
Flooding threatens the continuous operation of the sector. Accordingly, outdated infrastructure must be modernised urgently. Special insurance policies offer protection against property damage and loss of income, but companies can also consider nature-based solutions and comprehensive organisational planning among others.
Inland waterway transport
Low water levels caused by droughts are increasingly becoming a threat to inland shipping operations. Companies in the sector need to overhaul their infrastructure, but should also continue to strengthen exchanges and joint initiatives with insurers. In addition to traditional insurance, there is growing demand for more accessible solutions that insure against business interruptions.
Data processing and hosting
Data centres and related facilities must realign themselves in light of risks posed by natural hazards. The selection of locations and the securing of facilities in vulnerable areas are becoming increasingly important. It is therefore crucial for this sector to adapt its operating sites and develop effective flood strategies to ensure operational reliability.
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