The recent spate of extreme weather events across the globe is a stark reminder of the changing climate and its far-reaching impacts. From raging wildfires to catastrophic flooding, these natural disasters have left a trail of devastation in their wake. At Summit, being a commercial insurance brokerage, it's imperative to delve into the insurance repercussions of these calamities, thereby offering a nuanced perspective on navigating the turbulent weather of change.
Extreme weather events have increasingly become more common, more costly, and harder to predict over the years. For instance, the cost per weather event has surged by nearly 77% over the past five decades. In Canada alone, severe weather caused an estimated $2.1 billion in insured damage in 2021, highlighting the financial burden on both insurers and policyholders.
The escalating severity and frequency of these disasters are reshaping the insurance landscape. In the U.S., the 2017-2018 wildfire seasons saw the insurance sector losing an equivalent of two decades worth of profit, indicating the financial strain these events exert on the industry. The ripple effect is seen in insurers reducing coverage they can afford to offer due to the increased frequency of extreme weather events, with states like Florida and California being prime examples.
The looming threat of climate change and its manifestation through extreme weather events underscore the need for a robust insurance framework. Climate risk insurance emerges as a potential solution, offering a buffer against the financial repercussions of such adversities. This innovative insurance product could play a pivotal role in safeguarding interests and ensuring financial stability in the face of escalating climate risks.
The global economic toll from extreme weather events could reach a staggering $5 trillion under a plausible increase in such events due to climate change, leading to wide-ranging consequences including crop failures and food and water shortages. The intertwining of climate risk and economic stability accentuates the importance of a well-rounded insurance strategy to mitigate these challenges.
As the world grapples with the ramifications of climate change, the insurance industry stands at the crossroads of adaptation and innovation. Harnessing the insights from recent extreme weather events can steer the development of insurance products that are in sync with the evolving risk landscape, offering a beacon of hope amidst the infernos of change.