Two Important Effects Of Climate Change On The Insurance Industry (And What They Might Mean For Your Business)
Climate change is one of those items you might see featured in the news on an almost continual basis, yet it never seems to noticeably affect you. This is about to change though, because scientists have warned that planet earth is already halfway towards the dangerous threshold for climate change. It seems inevitable that some direct and noticeable effects of this phenomenon will soon hit the economy, and one of the industries in which it will most likely have the most profound influence is the insurance industry. Insurers are actually quite well prepared for its effects, due to the work of actuaries, whose role it is to analyse risk and keep up to date with emerging trends in the insurance sector. Knowing what effects climate change will have on insurance and thus on your business will help you make better-informed decisions to manage and mitigate risk.
Increased Premiums: Due to the positive correlation between climate change and severe weather events, business insurance premiums are very likely to rise. You should factor this into your yearly budget, possibly by estimating your commercial insurance premium costs more conservatively. With an increased likelihood of severe weather events comes a higher likelihood of insurers having to pay out on claims for products such as business interruption coverage and storm damage insurance. Actuaries will factor this into their pricing, and consequently, there will be a marked upswing in premium costs.
New Insurance Products: Insurers will likely see climate change as an opportunity to introduce innovative new products into the market. A possible outcome of this for your business is that incentives such as discounted premiums may be offered for switching your company over to renewable energy sources. Investing in renewable energy is an expensive venture for even the most solid business, so as a further incentive, insurance companies are likely to offer direct investment to help with the set-up costs of installing these more environmentally friendly sources of energy. Investment in "green" energy is a wise choice, as it could have the dual effect of benefiting both your business and the environment.
It is difficult to quantify the exact impact that climate change will have on the insurance industry and the wider economy within the next few years, but there is no doubting that it will be substantial. Scientists have already warned about the startling pace at which it is advancing. Informing yourself about the key effects of climate change on the insurance industry is one of the smartest business decisions you will make this year. For more information, contact local insurance companies like Westralian Insurance.