Reinsurers at the forefront of climate change action

Climate change has been front and centre of Mark Leplastrier’s career since he joined IAG 21 years ago.

Today, as executive manager ­— natural perils, he and his team are focused on risk modelling, primarily for reinsurance, risk-based pricing and major event support.

Leplastrier believes that as the global average temperature increase is hovering around 1.2°C above the 1850 — 1900 average, everyone in insurance or reinsurance should consider the rapidly-changing climate as part of their risk management in the near and longer terms.

‘We’ll be surprised by the way relatively small changes to background climate can bring about exponential increases in damage,’ he says.

‘Once you cross the thresholds of how we design buildings and where we put them, the damage can really ramp up.

'A category four and category five hurricane might not sound very different on paper, but it could be the difference between minimal or extensive building damage.’

Compounding threats

Leplastrier will appear on a panel discussing the impact of climate change on the reinsurance industry at ANZIIF’s Reinsurance Rendezvous event in Terrigal, NSW from 23 to 25 October 2022.

He will be joined by Leadenhall Capital Partners’ chief underwriting officer Jillian Williams and University of NSW climate scientist Andy Pittman.

The impacts of warming temperatures are being felt around the world, but Leplastrier points out that small changes in climate can also affect the compounding nature of the threat.

For example, we might expect rising temperatures to lead to longer more severe droughts and more frequent extreme fire weather days.

However, we may also see dramatic increases in available fuel loads as larger trees dry out, reduced effectiveness of natural containment lines such as creek beds and, as we saw with the black summer fires where catastrophic conditions continued through the night, less time for firefighters to try to contain fires.

‘The impacts could compound so that suddenly you don’t have a 10 per cent increase in risk, you have double or triple the risk,’ says Leplastrier. ‘This is something we have to be very conscious of and careful about when considering future climate impacts.’

Understanding the trends

Leplastrier would like to see insurers focus on developing their understanding of trends before a major event occurs.

‘Infrequent events drive a lot of the risk for insurers and reinsurers,’ he says.

‘But the fact that there hasn’t been a cyclone or a very large hailstorm in a particular area doesn’t mean the probability of one occurring hasn’t changed.

'The change in risk needs to be factored in — and we need to look for better ways to communicate this so that consumers can make more informed decisions.’

An inherited problem

Much of the current risk associated with the Australian built environment evolved before modern risk management approaches were incorporated into land use planning and building codes and controls.

‘As an example, the modern planning approaches to flooding, which came into effect in the early 2000s significantly improved the management of flood risk,’ says Leplastrier.

‘The problem is that the climate and the science are evolving, so we must allow for these uncertainties in risk management approaches in order to minimise adverse impacts on future communities.’

He sees an important opportunity for insurers and reinsurers to contribute to the broader understanding of risk to the community and other stakeholders by translating the risk into dollars.

For example, communicating the impact on insurance premiums for a proposed development or helping stakeholders understand the damage costs if a particular disaster scenario occurred.

Working to reduce risks

Leplastrier says reinsurers can also work with external stakeholders, such as engineers, to help identify and prioritise areas for risk reduction.

‘For example, we worked with an external flood consultant to identify top national mitigation priorities for flood-affected towns in Australia — areas where the cost—benefit ratio was better than 1.0.

'We couldn’t have done that on our own because, while we knew where the high-risk areas were, we’re not experts in viable engineering solutions to mitigate risk.’

As a member of the Insurance Council of Australia’s climate change action committee, Leplastrier has worked on projects where companies have shared their data and insights to advocate for outcomes as an industry.

’Insurers and reinsurers hold valuable information about the social, environmental and economic impacts of major weather events on communities,’ he says.

‘With this comes an important opportunity for these insights to be leveraged to advocate for better community resilience in the future, such as improved land-use planning, building controls and codes and risk-reduction programs.

‘As people continue to move to high-risk areas because they’re more affordable, it’s vital that we find ways to provide affordable housing in safe areas. Everyone from governments to communities need to be part of this if we’re to avoid the terrible societal outcomes we’ve already seen in Lismore.’

Part of the solution

Leplastrier argues that insurers and reinsurers are uniquely placed to help the public understand the risks they face and to prepare for natural disasters.

‘We’re at the forefront of climate change research and understanding the built environment and how it responds,’ he says.

‘We play a critical part in the cycle of risk and we can’t leave it to others to decide how to build, where to build and how to respond. We’re in a fantastic position to be part of the solution by helping to drive positive change.’

 ANZIIF's Reinsurance Rendezvous is an opportunity to catch up with the most up-to-date and thought-provoking market developments and insights.

Panel discussions and presentations from industry leading professionals, including Mark Leplastrier, will share their insights on the future of the reinsurance industry.