Worldwide increase in natural catastrophes is already hitting global supply chains

For the truth look no further than the insurance industry. It is hurting their bottom line

Climate change hits supply chains: Allianz

Financial Review,

15 April, 2019

A worldwide increase in natural catastrophes is already hitting global supply chains and causing a spike in business interruption insurance claims, a senior executive with Allianz Global Corporate & Specialty has warned.

AGCS chief regions and markets officer Sinead Browne said this trend, which she directly linked to climate change, was pushing premiums up around the world, adding this "correction" was likely to continue for the "next few years".

While property damage is the most obvious effect of extreme weather events, Ms Browne said business interruption resulting from these events was proving costlier, claim for claim, than property damage.

"The average business interruption claim that we pay out is €3 million, versus a property damage claim of €2 million," Ms Browne, who is based in the UK but has responsibility for the Australian arm of the business, said.

Ms Browne said global interconnectedness including Asian countries being used for low-cost manufacturing was pushing premiums up around the world. "We’re seeing what we would call corrections, which means an upwards movement in insurance pricing following many, many years of downward pricing movement. That’s absolutely a global trend," she said.

“If we look at natural catastrophe events, we’ve seen over the last two years very heavy events not just in the US but also in Asia. That is of course driving unprofitability into global portfolios which then requires remediation action, leading to pricing increases."

She said the spike in natural catastrophes was "all ... about climate change" and the net effect was increased premiums.

"The insurance industry needs to protect its balance sheet, and if the insurance industry is to sustain its ability to cover natural catastrophe disasters, it has to increase premiums in order to ensure that the premium pool is there to pay for these claims when they do arrive," she said.

"I would certainly see over the next few years we will be taking serious steps to adequately price our property portfolios and any portfolios that are subjected to nat cat."

Last week, global reinsurer Swiss Re put out its 'sigma' reinsurance figures for 2018, in which it found total insured losses from natural catastrophe events in 2018 were $US76 billion, the fourth highest on sigma records.

The combined insurance losses from natural disasters in 2017 and 2018, meanwhile, were $US219 billion, the highest ever for a two-year period.

So-called "secondary perils" – which are events such as river floods, heavy rainfall and bushfires, as opposed to traditional catastrophes such as cyclones and earthquakes – accounted for more than half of these claims.

Swiss Re warned these secondary perils were increasing, and the huge losses over the last year should serve as a "wake-up call for the insurance industry".

Allianz is one of an increasing number of global insurers to join climate change action initiatives, such as UN's Principles for Sustainable Insurance. It has also reduced its underwriting of and investment in coal.

While the Australian insurance industry and regulators such as the Reserve Bank of Australia and the Australian Prudential Regulation Authority have taken steps to address climate change, the federal government has been criticised for its inaction.

Ms Browne did not comment on Australian government policy, but she said she was "quite impressed" with what the UK government and the European Union were doing to mitigate climate change.

James Fernyhough writes about telecommunications, insurance and financial services. He's based in the AFR's Melbourne office. Connect with James on Twitter.Email James at james.fernyhough@afr.com.au