Climate Change: the risks for companies and professionals

Climate change: the risks for companies and professionals
Because we can no longer afford a Darwinian approach

By Sauro Mostarda, CEO of Lokky

It is certainly no mystery that climate change is one of the emergencies of recent decades. While this phenomenon has always existed in the history of the planet, the overheating we have witnessed in the last century is, however, anomalous because it is triggered by human activities which generate an anthropic greenhouse effect, which adds to the natural greenhouse effect and which represents one of the major global socio-economic risks.

According to estimates by the Center for Research on the Epidemiology of Disasters (CRED), in the period between 2001 and 2020, the average global costs incurred caused by extreme climate events was $153.8 billion, and in 2021 alone it reached $252.1 billion. Not only that, both the frequency and intensity of extreme events are expected to increase, with dramatic consequences also in terms of economic and human losses. In the two-year period 2020-21, in Italy there were 1,118 extreme weather events in 602 municipalitiesas observed in the recent Report of Legambiente’s CittàClima 2021 Observatory. These events were of different nature: high temperatures, intense rainfall, extreme hailstorms, floods and tornadoes. In 2021, nine people died from climate causes, for a total of 261 deaths in over 10 years. The progressive tropicalization of the climate in our latitude is increasing the risk of violent rainfall which can cause landslides and floods.

As we were saying, the damage caused by extreme natural events also has an enormous impact from an economic point of view, especially if we consider that Italy, among the countries bordering the Mediterranean, it is among the most exposed to the effects of climate change and seismic risk and, precisely because of its morphological fabric, 73% of the national territory is potentially exposed to the threat of earthquakes. Despite this, Italy currently has the largest protection gap with respect to this type of risk: according to data from the Sigma Report its protection gap for seismic risk is one of the largest in the world. Furthermore, floods and landslides occur in Italy more frequently than any other natural hazard, the main risk factors being flash floods, river floods and mudslides.

In our country, however, only 5% of homes have insurance coverage against earthquakes and floodsfaced with a risk – high or medium-high – which concerns at least 78% of buildings used for residential purposes. The IPCC (Intergovernmental Panel on Climate Change) report, published in February 2022, produced a series of insights on a regional scale dedicated to quantifying the impacts of climate change on societies and ecosystems, evaluating their vulnerabilities and adaptation capacities. As regards Europe, in particular, four fundamental risks have been identified: heat, damage to agriculture, water scarcity and floods.

In the current scenario, the insurance market therefore plays a decisive role in accompanying citizens, professionals and businesses in selecting the most appropriate tools in response to these risks. However, it is important that increasingly precise data from climate models and meteorological monitoring are used, to ensure that truly effective insurance solutions can be implemented. If you look at the business world, in Italy one company in three is exposed to potential economic losses due to natural phenomena, serious and less serious. Due to the poor insurance culture which has led, over the years, to a structural underinsurance of small and medium-sized Italian businesses, the adoption of guarantee policies against losses triggered by these events remains marginal throughout the Peninsula.

According to the CRIF-RED study physical risks cause Italian companies an expected loss of around 1% of turnover per year and, due to climate change, in the next 30 years expected economic losses will rise by around 10%. Finally, in 2050, 7% of Italian companies will be at risk of losses due to heat waves, with peaks of up to 55% in the South.

It thus assumes a fundamental role the debate onimpact subscriptionor the integration of climate risks into underwriting policies. THE’impact subscription puts ESG (Environmental, Social and Governance) factors and climate risks within them, at the center of product construction, evaluation of potential insureds and determination of premiums; Iimpact subscription thus traces a possible evolution of insurance business models. Finally, to adequately address the climate crisis, companies and players in the insurance market will no longer be able to limit themselves to developing risk coverage, but will have to accompany the insured in an adaptation process to climate change, through the offer of dedicated digital solutions and innovative product and claims management logics. Faced with a challenge that can no longer be postponed, all the actors involved will have to act synergistically and join forces to make such coverage mandatory and discriminate against a Darwinian approach to risk taking that, in Italy, we have no longer been able to afford for too long now.