In 2013, 3,000 insurance executives were polled to identify the most serious extreme risks facing the industry. By a large margin, they identified the world’s greatest threat as “a new, highly infectious and fatal” pandemic. In case you were wondering, an “invasion of non-peace-seeking aliens” was ranked lowest among 57 different risk factors.
In 2008 Lloyd’s of London, the traditional insurance market place, also warned that “pandemics are inevitable and have happened regularly in the past … Economic impacts are likely to occur and a pandemic as severe as 1918 may lead to a global recession with reductions of between 1% and 10% of GDP.”
Pandemics have clearly been on the mind of insurance executives for a long time. But if the world’s professional risk managers tried to convince governments, businesses and other actors to better prepare for such an event, their efforts didn’t match the severity of the threat. Meanwhile many of them excluded pandemics from the risks covered by their business interruption policies, as businesses are now discovering.
The failure to adequately prepare for a pandemic which insurers recognized as a serious threat has so far cost more than 100,000 lives, millions of jobs and trillions of dollars in expected economic losses. We need to learn from this experience before the next global crisis comes around.
Last year Willis Towers Watson, the insurance broker that conducted the 2013 survey, published a new report on extreme risks. Not surprisingly climate change, briefly described as the “Earth’s climate tip[ping] into a less-habitable state”, now appeared on top of the list. North American actuaries came to the same conclusion in another survey in the same year, while reinsurer Munich Re warned about climate risks as far back as 1974.
Although the professional risk managers of the insurance industry have once again identified the biggest threat facing the global community, they have so far not done enough to convince governments and businesses to urgently address the challenge.
On the positive side, insurers such as Swiss Re and AXA, Zurich and Allianz have repeatedly warned about climate risks in reports and public statements. As of now 19 leading insurance companies have stopped or limited insuring coal projects, and
twice as many have divested from coal.
However the large national and international insurance associations have so far not been forceful advocates for climate action.
Insurers have yet to use their influence as investors with $30 trillion under management to convince the businesses they invest in to rapidly align their activities with international climate goals. Some of the biggest insurance companies, including AIG, Lloyd’s and Tokio Marine, continue to cover the expansion of fossil fuel projects that undermine the Paris Agreement (while withdrawing from the regions most affected by climate risks such as hurricanes and wildfires).