“How can our society avoid the disastrous consequences associated with climate change risk?” asks a new Munich Re US white paper,
Reimagining Resilience in a Post Pandemic World. The COVID-19 pandemic has led to societal and economic disruption on a global scale, and climate change is also expected to result in far-reaching societal and economic impacts.
The white paper explores how our society might become more resilient to a similar disastrous situation with respect to climate change risk.“Climate change is one of the greatest long-term risks in the insurance industry, and the early impacts are already here—right now,” said Raghuveer Vinukollu, Nat Cat Strategic Products Team Lead, Munich Re US. “As the COVID-19 pandemic has illustrated, the best course of action is preparation on an ex-ante basis rather than an ex-post one.
Severe flooding, devastating wildfires and hurricanes… no place on earth is immune to extreme weather events. There is strong evidence that climate change has already had a significant influence on the frequency and severity of some types of natural disasters and extreme weather events in regions across the world. Society needs to act immediately to mitigate and adapt to the effects of climate change if we want to strengthen our resilience.”
What do pandemics and the future catastrophes that climate change could bring have in common? They are both systemic by nature. They also highlight the need for longer-term prevention strategies that are often sidelined in favor of short-term priorities. If vulnerable regions continue to deprioritize long-term strategies, the risk of unexpected and severe global disruption due to extreme weather will likely exacerbate.
Extreme weather might also widen the protection gap that already exists between economic and insured losses if steps are not taken to reduce the vulnerability of property and adapt to the changing risk landscape.
“Extreme weather events are not anomalies or black swans, but more like gray rhinos,” said Vinukollu. Gray rhinos, a term popularized by the American policy analyst Michele Wucker, are events that are highly probable, highly impactful and often neglected.
“Extreme events, such as a pandemic or a natural catastrophe, may seem like they are once-in-a-lifetime black swan events, but they are not. Urbanization, deforestation, resource consumption and mass travel have the potential to make these events more common, especially if our collective behavior remains unchanged.”
As the white paper notes, the importance of embracing gray rhino events was evident in the COVID-19 response. Those countries that understood the risks associated with a global pandemic were the most prepared, suffered less disruption and were able to return to everyday life more quickly. A greater acceptance of climate change and the risk of gray rhino events opens the door for governments, enterprises and others to build resilience.
The work to promote resiliency in the face of climate change must be collective in nature, with the insurance industry having an important role to play. Better risk transfer solutions and a higher take-up rate of insurance across communities means a faster recovery. The insurance industry has an advanced understanding of climate risk and extreme events, and its modelling, analyzing and forecasting capabilities offer vital insights to other participants in the resilience ecosystem, helping them better comprehend the risks, identify potential weaknesses and plot a course toward prevention.
Education and expertise in risk assessment can guide governments and businesses towards making meaningful policy shifts such as improved building standards and land-use practices. This new generation of technologies, practices and standards will help reshape the way society mitigates and manages the risks of climate change.
“Climate change can feel daunting, but we are in a critical period where powerful steps need to be taken to help make society resilient against future catastrophes and mitigate the impacts of living in a warmer world,” said Vinukollu.
“It took a virus only a few months to give our modern world its first experience in understanding what global societal and economic disruption looks like. The world has known about the disruptions climate change may cause for decades. Right now, we have the unique opportunity to reimagine how businesses function, redesign standards and practices, and strengthen the relationships and knowledge sharing between the multitude of parties that have a stake in climate change and resilience. There is power in partnerships. We only stand to lose if we collectively choose to do nothing,” he said.