Brendan Sanford 
As climate impacts become more severe, insurance availability and affordability is at risk. If insurers charge higher premiums, middle and low-income households could become priced out of the market and therefore will no longer have protection against future natural disasters.
Opportunistic insurers should shift their business models in order to mitigate physical climate risks and support the energy transition. They could offer home owners advice on building sustainably while offering incentives after losses for rebuilding with resilience in mind.
Preventive measures
Insurance is a form of risk management that involves paying premiums to provide protection from certain accidents. Insurance provides many advantages to individuals, businesses and society in general: risk reduction, financial stability, psychological relief, business continuity protection and asset protection are just a few benefits that insurance can bring; additionally it contributes to social economic development by providing capital funds.
Climate change poses a severe threat to human health, impacting people in multiple ways and particularly vulnerable groups. Urgent action must be taken to reduce emissions to prevent tipping points that render adaptation impossible.
Integrating climate risks and health risk management strategies has the potential to enhance global health security, but requires robust funding in order for it to work. By including climate considerations into mainstream decision making processes, climate risk can become more visible – creating greater awareness of its urgency while decreasing anxiety.
Mitigation measures
Mitigation measures are actions designed to mitigate the adverse impacts of climate change. They include efforts to lower greenhouse gas emissions; adapt to changes in the environment, economy and society; and explore geoengineering (an additional form of deliberate manipulation of Earth systems to offset at least some effects of global warming). Mitigation measures aim to minimize natural disaster risks while strengthening resilience across communities and landscapes.
Financial institutions must incorporate climate-risk considerations into existing workflows, including loan decisioning, credit risk evaluation and rating, disclosures and regulations compliance, portfolio planning and loan decisioning processes. Banks must acquire or acquire necessary technical skills along with IT systems, data storage options and tools in order to effectively manage climate risks.
Effective climate risk management demands an in-depth understanding of physical and transition risks that may have an effect on creditworthiness of borrowers. Moody’s on Climate offers transparent data analytics to strengthen and inform credit risk management practices.
Resilience measures
Resilience is an integral element of mitigating climate risk. Resilience refers to our capacity to adapt and thrive in changing environments after natural disasters; however, its evaluation can be tricky. In response, researchers are seeking tools that measure resilience; one such scale is the Connor-Davidson Resilience Scale which measures personal competence, acceptance of self and life acceptance, positive emotions as well as other measures.
The scale is also useful in identifying those at high risk of mental disorders following natural disasters, providing the opportunity to access mental health services as needed. Accordingly, this research indicates that the Connor-Davidson Resilience Scale is a valid and reliable instrument in identifying resilient individuals after natural disasters.
Companies that take proactive steps to bolster their resilience can minimize some of the negative impacts associated with climate change. They can do this by monitoring physical climate risks, engaging with stakeholders, and setting up structures to support resilience planning – such as assigning a climate resilience lead to their risk committee and conducting regular status briefings.
Insurance
Climate risk insurance provides crucial protection from an array of losses, such as rebuilding, relocating or retrofitting costs of homes; drought costs; wildfire costs; or any natural disaster losses. Climate risk policies allow communities to recover quicker while breaking cycles of poverty and vulnerability.
However, for insurers to reap these advantages of climate change insurance policies effectively they must first understand and predict its risks; this involves scenario testing as well as an in-depth knowledge of physical risks such as those linked to tectonic plate patterns or sea level rise.
Insurers should also be able to assess the effectiveness of mitigation and resilience measures in protecting against climate-related losses more accurately, providing assurance to regulators and potentially preempting more onerous disclosure requirements. This is particularly crucial given their exposure to climate risk both on the asset side as well as liability side of their balance sheets.
