Swiss Re Risk Engineer Adi Mehta has won the 2021 Aon Scholarship for his essay on the topic of ‘2050 Climate Change: Industry Impacts, Challenges and Opportunities’.
'You could hear the shrieks of women, the wailing of infants and the shouting of men. Some prayed for help. Others wished for death. But still more imagined that there were no gods left and that the universe was plunged into eternal darkness.' – Pliny the Younger, Eruption of Vesuvius, 79.
The year is 2050. The Paris Agreement to limit the rise of global temperatures to 1.5 degrees Celsius above pre-industrial levels has failed.
The Glasgow Climate Summit is now recognised as having been our last chance to reach collective cohesive action on the single greatest existential threat of our species and indeed life on Earth.
Shanghai (population 26 million), Mumbai (20 million), Bangkok (8 million) and Alexandria (population 5 million) are underwater (Kulp & Strauss, 2019). So are Miami, Boston and New Jersey (Dobson, 2019).
Vast swathes of the Earth are experiencing prolonged drought and bushfires, like those in Australia in 2020 are year-round occurrences. More than a billion people experience lethal heatwaves regularly (Woetzel, 2020).
The increasing moisture in the air means cyclones are more intense and occur more frequently. The melting of permafrost layers has exposed humans to pandemics they have no biological defences to.
Floods are impossible to predict and prevalent in parts of the world unused to and unprepared for them. Australia's Great Barrier Reef, once endangered, is now the latest on a long list of man-made mass extinction events.
'The Heilenbecke is usually a small creek, which is a maximum of 20cm high, but in the space of hours it rose up to 5m high' – Phillip Huckenbeck, Wuppertal. 'My city looks like a battle has taken place.' – Gregor Jericho, Rheinbach, Germany, 2021.
Back in 2020, we realised clearly for the first time, and more than ever before, how we are all connected, and this gave thought to common threats.
However, too busy battling a pandemic, we didn't realise that one in five people were dying due to fossil fuel generated fine particle pollution (Vohra, 2021), and today the proportion and number is too high – nigh on irrelevant to count.
The life and health insurance industry is on its knees.
Despite premiums rising steadily and sharply over decades, with an initially expanding (due to rising deaths leading more to seek cover), and eventually rapidly shrinking (due to unaffordable cost of premiums) pool of insureds who can afford to buy insurance cover, claims have significantly outweighed premiums over the long term.
The same can be said of commercial and personal property insurance. It seemed that a hardening market and rising premiums would protect insurers from the effects of more and more properties becoming uninsurable.
Everyone knows it's difficult, almost impossible to find affordable flood insurance in a designated flood plain and everyone knows its difficult to find cyclone insurance on a tropical island.
But what happens when history provides no basis for the catastrophes of the future?
There was no historical data that could have predicted Hurricane Sandy (Messervy, 2016). As a result, earlier in the century, insurers and reinsurers began limiting and reducing cover from more and more areas and jurisdictions around the world for many natural perils (Messervy, 2016).
The consequence is that the once important and dominant insurance market that managed approximately one tenth of total assets in the world (Schmid, 2019) is less relevant.
This has been exacerbated by the collective inaction of governments (who spent years and taxpayer funds appealing and fighting wars in court while neglecting the fact they too have a duty of care to protect their citizens [Keck, 2021]) and industries globally.
Now, in 2050 insurance assets under management amount to less than one percent of global asset management.
'It's pretty embarrassing when you think about it, the Australian federal Minister for the Environment is now taking it to the courts to prove her right to harm the environment.' – Anjali Sharma, Reuters, 2021.
Insurance is now seen as a luxury afforded by a wealthy, rarefied few, who opportunistically acquired inland areas in preparation for sea-level rise and climate change.
People would rather fit air filters in their cars (as the air is too toxic to breathe and the risk of asphyxiation much higher than a crash, especially as cars were largely self-driven) than buy motor insurance.
The effects of a once in a hundred-year global pandemic remembered as COVID-19 are still felt in the community, with yearly vaccinations necessary and more keenly in the insurance market as the time when public perception saw the market walk away from their insureds, unaware that 'pandemics are something that have never been contemplated for cover simply because they are too large an event'. (McGrath, 2020).
A select few reinsurers, however, with long memories and even longer histories had been seriously warning about the risks of climate change as early as the 1970s and increasingly set aside a war-chest to contend with the impacts of life and non-life perils around the world.
Considering their livelihoods and lives at stake, they effectively formed a progressive corporate wealth fund with advanced knowledge of predicting risk and a measurable and indisputable observation of the worst effects of climate change.
Within their investment divisions, they issued green covered bonds and loans to empower green investment. In their daily business interactions, reinsurers socialised their findings into the wider insurance market via their direct insurer relationships, imbuing sustainability and the risks of climate change at the core of their business.
The insurance market invested heavily in carbon sequestering technology via their many investment arms as well as truly renewable energy production mechanisms such as solar and wind, their efficient storage, the electrification of travel by air, land and sea.
They funded open knowledge sharing programs to help protect people and property from the inevitable impacts they faced while also considering the risk of too little carbon in the atmosphere and the fine balance life on Earth requires to sustainably live.
Internally, institutes were set up as knowledge centres and thought leaders with scholarships and philanthropic ideals.
The surviving insurance companies drastically re-thought their impact on the environment during the early stages of COVID-19 as the realisation of a global crisis brought a much-needed reality check to an industry at times shielded by old relationships, its underwriting shrouded in an air of mystery and underpinned by large balance sheets.
Some insurers moved into carbon neutral (or negative) buildings, limited air travel to business-critical journeys, paid for plant-based jet fuels and promoted sustainable diets in entertainment and locally sourced, seasonal produce.
The insurance market amplified its voices at critical political summits around the world and supported them with urgent action, refusing to underwrite fossil fuel technologies seemingly overnight.
Their investment divisions, where sustainability journeys often began, continued promoting investment in alternative and green technology.
This call to arms was unusual for an industry which typically allowed insured long periods of time to find alternative cover, and historically displayed no compunction about covering big business regardless of the environmental impacts.
The market heaved and hardened beyond reckoning as capacity for significant parts of the corporate world shrank like the lakes (due to aridification) and became scarce.
Businesses that were willing to transition and pivot away from polluting technologies and business models were supported and educated by insurer research teams with rapid execution plans in the race to net zero.
Insurers formed partnerships with pioneers in renewable transportation and logistics models, creating an ecosystem within the increasingly omnipresent internet of things to streamline and reduce consumption, while still maintaining and elevating living standards.
Shareholders, both corporate and retail, drove change with impact statements, ultimatums and directions to boards.
Insurers went further, refusing to protect industries such as those involved in plastic production. They invested in and supported organisations committed to the cleaning of our oceans from plastic waste.
They encouraged, even accepted inherent innovation risks and supported alternative packaging (such as biodegradable plastics made from fish), and alternative building materials, reducing the footprint of the both the food and construction industries (Grolms, 2019).
The industry still grapples with balancing timber construction and its indisputable environmental benefits with its inherent fire risk (Glockling, 2021).
The market increased support for recycling industries and explored methods to reduce inherent risks faced, carefully crafting their appetites such that risk and a reduction in consumption was an incentive for companies rather than a cost or risk to bear.
Insurers added value by selectively underwriting with sustainability as a driver, as opposed to transferring or accepting risk alone.
The hard lessons, economic scars and disruptions of 2020 permeate through remaining reinsurers and insurers as they provide benevolent protection to the most vulnerable, funded by the pools of risk generated in those parts of the world feeling the impacts of climate change the least in 2050.
Charities, aid organisations and NGOs began innovatively partnering with reinsurers, deploying large scale and wide ranging protection in the form of catastrophe bonds and insurance linked securities for vulnerable communities.
This multiplied the benefits of foreign aid and utilised a proportion of premiums prior to catastrophes hitting rather than leaving them for aid and recovery alone (Evans, 2021).
In effect, the insurance market and the reinsurance market in particular, acted as a conduit to diversify and spread the risk of the natural disaster across a wider pool of investors.
In the underwriting space, financial lines led the way by requiring that carbon neutrality or negativity plans be included by customers as a central pillar in the underwriting process and pressed these with urgency at each renewal cycle.
Property lines followed, deploying risk knowledge in rebuilding, and teaching those in cyclone-prone areas how to properly secure their roofs and windows.
Insurers re-learned and disseminated new sources of information to the modern world from indigenous practices of land conservation, management and backburning.
They tested and toughened solar panels against the increasing effects of convective hailstorms and refused to underwrite irresponsible agriculture and farming or the unsustainable carbon credit industry which sprung up just as quickly as sustainable industry projects both on land and in the ocean (Hagelberg, 2019).
Instead, they invested in responsible land and water management groups reintroducing diverse flora and fauna into areas they long ago left. Like the spirit of the wolves reinstated into Yellowstone National Park, insurers began to change the conversation and the very terrain around them.
'Country is multi-dimensional – it consists of people, animals, plants, dreamings, underground, earth, soils, minerals and waters, surface water and air. There is sea country and land country; in some areas people talk about sky country. Country has origins and a future; it exists both in and through time.' Deborah Bird Rose, Australian Heritage Commission, 1996.
As always, there is hope which can take on a life of its own. While natural and ecological disasters escalate, the world once again looks to the (re)insurance market to provide much needed respite from physical and economic damage.
On an unparalleled and unprecedented scale, the lessons from the great fires of the medieval age which razed entire cities to the ground and gave birth to many insurers of today, yield hope for a better future as brilliant insurers emerge from the ashes of yet another long and deadly bushfire season in the United States, Europe and Asia, actively reducing the carbon concentration in the atmosphere of our planet.
Like Prometheus giving fire back to humans as a tool, the titans of the insurance world act as custodians of risk pools everywhere, providing managed flows of capital to energise and activate the green recovery.
The insurance company of the future has instilled in its members the vision of not just closeing, but eliminating the protection gap and by changing the focus from insured losses or combined ratios.
It underwrites microfinance and risks at fair prices as stewards of risk pools in developing and vulnerable communities.
A rising tide lifts all boats, and with transferable risks safely accounted for, cottage industries spring into life, hauling millions out of poverty via the miracle of human enterprise and productivity.
By promoting of awareness, understanding and by partnering with communities, the insurer of the future exists with one sole aim in mind.
Not to deepen or line the pockets of their shareholders, but rather, to provide a mechanism of resilience and a pool of risk large enough and accessible enough to cater for everyone in the world regardless of where they live, or their socioeconomic status. Essentially, doing what they always seek to do.
The insurers that exist today behave like a cooperative mutual fund with profits being ploughed back into wealth growth, planetary regeneration and with benefits provided to insureds and potential insureds (currently uninsured i.e. those that can't afford it) members alike.
'We received a text message from our neighbour that her house, along with ours and many others, were gone.' – Neil Ward, Natural resources and conservation manager, Chiltern and Mallacoota, Victoria, Australia, 2020.
Why did the insurance market choose and begin to act in this way? They recognised before most that by limiting warming to 1.5 degrees Celsius or less, several hundred million people would be protected from climate related poverty (Buis, 2019).
Food security would be safeguarded in the Mediterranean, Central Europe and the Amazon (Buis, 2019). The Arctic would not be experiencing sea-ice-free summers (Hoegh-Guldberg, 2018). Pestilence and disease would be at bay.
The biodiversity of species, their abundance wiuld be protected and their risk of extinction prevented.
Food stocks would rise again and hunger would become a thing of the past. Slowly, the ecological balance has the potential to be restored and the benefits of the digital age can be realised through better living conditions for all.
A brighter future awaits us if we can rally our communities and all of us as individuals enter the fray. The power is yours. If we lend our voices to advocating change.
If we transform our thinking and socioeconomic metrics from consumption, usage and production to sustenance and diversification (which works as well in life as it does with risk). If we act urgently as though our lives and our children's lives depended on it, which they surely do.
Everyone has a role to play, in their personal and in their professional spheres. Then and only then will the Earth's rhythm return to its equilibrium and humanity's music play and live on forever.
'So we must work at our profession and not make anybody else's idleness an excuse for our own. There is no lack of readers and listeners; it is for us to produce something worth being written and heard.' – Pliny the Younger, 79.
- BBC. (2021). Germany floods: "My city looks like a battlefield". British Broadcasting Corporation.
- Buis, A. (2019). A Degree of Concern: Why Global Temperatures Matter. NASA.
- Dobson, J. (2019). Shocking new maps show how sea level rise will destroy coastal cities by 2050. Forbes.
- Evans, S. (2021, July 28). Red Cross targets cat bonds for nature-based humanitarian, resilience financing. Retrieved from Artemis: https://www.artemis.bm/news/red-cross-targets-cat-bonds-for-nature-based-humanitarian-resilience-financing/
- Glockling, J. (2021, May 22). MMC or UMC (Uninsurable Methods of Construction). Retrieved from RISCAuthority: https://www.linkedin.com/pulse/mmc-umc-uninsurable-methods-construction-jim-glockling/
- Grolms, M. (2019, December 26). A Bioplastic Made From Fish Waste. Retrieved from Advanced Science News: https://www.advancedsciencenews.com/a-bioplastic-made-from-fish-waste/
- Hagelberg, N. (2019, June 10). United Nations Environment Program. Retrieved from Carbon offsets are not our get-out-of-jail free-card: https://www.unep.org/news-and-stories/story/carbon-offsets-are-not-our-get-out-jail-free-card?__cf_chl_managed_tk__=4d2f9b53af949a49f32b06e7522e064976a95500-1626561653-0-AZ0eEcI7ySXhu97S42RRms-UBjVb9fqAO0wEhD5PswrPbk4JL6PzTFSu9uexlms8-XZavKtRP5dQ4oOIGcMCm
- Hoegh-Guldberg, O. (2018). Impacts of 1.5C of Global Warming on Natural and Human Systems. The Intergovernmental Panel on Climate Change.
- Keck, M. (2021, June 2). Australian Court Rules the Government has 'Duty of Care' to Protect Young People From Climate Change. Retrieved from Global Citizen:
- Kulp, S., & Strauss, B. (2019). New elevation data triple estimates of global vulnerability to sea-level rise and coastal flooding. Nature Communications.
- McGrath, P. (2020, December 15). Australian businesses fight insurance industry for payouts over coronavirus revenue losses. Retrieved from ABC News: https://www.abc.net.au/news/2020-12-15/australians-fight-insurance-industry-for-coronavirus-loss-claims/12972046
- Messervy, M. (2016). Insurer Climate Risk Disclosure Survey Report & Scorecard. Ceres.
- Schmid, E. (2019). Avertin a collision course with climate change. Swiss Re.
- Vohra, K. e. (2021). Global mortality from outdoor fine particle pollution generated by fossil fuel combustion: Results from GEOS-Chem. Environmental Research.
- Woetzel, J. (2020). Climate risk and response: Physical hazards and socioeconomic impacts. McKinsey Global Institute.