Why the vulnerability hole issues to insurers


Sustainability is a global issue with unique implications for insurers. In this series, I’ve discussed the nuanced definition of sustainability for insurers in Europe and how that relates to their overall strategy and products. While environmental and climate change concerns are priorities, there is one more thing that insurers need to be aware of. Insurers help their clients manage risk, but what if some communities are more at risk than others? A major social goal for the insurance community must be to focus on improving coverage and affordability in historically underserved areas.

Awareness of customer vulnerability

What does that mean? Basically, we have to create products and solutions that enable vulnerable and low-income households to protect themselves against risks. In the wake of the COVID-19 pandemic, this is more important than ever as many household incomes may be at risk. Italy, for example, has prioritized this in the training of insurance professionals, with the ANIA Academy, in partnership with CeTIF (Research Center on Technologies, Innovation and Finance of the Università Cattolica del Sacro Cuore), offering the first master’s degree of the second level in insurance management, with a focus to respond to the challenges of the “new normal”.

Use data to strengthen

When it comes to climate change, insurers need to work to provide accessible and affordable products that are disaster-sensitive, but also help communities prepare for the ongoing effects of climate change. Fortunately, with the tools at our disposal like aerial photography and machine learning, we can provide a deeper understanding of risk and generate useful data that will help us better serve vulnerable communities.

The impact of this data can be seen in the UK, where local insurers are involved in a range of activities that aid national and regional forecasting of future weather and disaster patterns. These data outputs and modeling not only inform about their business practices, including pricing decisions and risk-based capital assessments, but also shape the UK insurance sector’s dialogue with policy makers.

At a global level, data can help us understand our customers’ needs. As Kenneth Saldhana pointed out in his latest analysis for Insurance News, the role of the insurance industry in creating greater resilience for vulnerable countries and communities was an important part of the discussion at COP26 and a driver of the new Global Resilience Index Initiative. First announced at the COP21 climate talks in Paris in 2015 and officially launched the following year, the IDF unveiled several initiatives during the recent COP26 talks in Glasgow, including the Global Resilience Index Initiative (GRII), the a globally uniform model for assessing resilience in all sectors and regions. This is curated on an open source basis.

Cultivate Understanding

Ultimately, climate resilience begins before a climate emergency. Insurance customers, especially in endangered areas, must be prepared to deal with climate threats and their economic effects. Insurers in Europe are responding to this need with a wide range of awareness campaigns. In Germany, for example, insurers work with government agencies, consumer protection organizations, architects and other stakeholders to raise awareness of the effects of climate change and natural hazards; the benefits of loss prevention and best practices in relation to natural disaster resilient buildings. This can be seen in Germany’s relatively small protection gap; and an insurance penetration rate for natural hazards such as storm or hail of over 90%.

When it comes to protecting vulnerable communities from the effects of climate change, we as insurers can help break the cycle by investing in protection and resilience earlier and building awareness through data. This should be done against the background that climate incidents happen not only to individuals, but also to communities and our planet.

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Disclaimer: This content is provided for general informational purposes and is not intended to be used in lieu of advice from our professional advisors.
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