Climate change related to global warming is bringing about significant changes in the auto insurance industry, which affects everything from how to approach claims and financial risk assessments to auto insurance rates and consumer retention.
In this blog post, we explore how the climate crisis is impacting the auto insurance industry and offer insights and advice on how to navigate these challenges.
What Climate Change-Related Challenges Are Insurers Facing?
According to a recent report, there has been a 250% increase in insured losses from natural catastrophes over the past 30 years. Due to climate change, perils like storms and wildfires result in an even faster increase in insured losses.
With the increased frequency and severity of weather-related accidents and the rising costs of repairs and liability claims, global warming poses significant challenges for insurance providers. Two key challenges are:
- Increased Frequency of Weather-Related Accidents
We often see the impact of global warming–related weather changes the most during the summer months following the somewhat calmer winter and spring months. It’s during the summer months when catastrophic events like hurricanes, flooding, and wildfires typically occur, and climate change amplifies these events.
Within the United States, the east coast region is seeing a worsening of hurricane season, with deadlier and more frequent storms occurring and affecting the coast from the southern tip of Florida through to the more northern states along the eastern coastline. We’re also seeing many more wildfires in California and up and down the west coast. Also, powerful inland hurricanes, with strong winds and heavy rains, have become more common in the Midwest.
- Higher Risk and Costs of Repairs and Liability Claims
Where losses were once more predictable, that’s no longer the case in many instances thanks to global warming. Generally, automobile insurers in conventional markets face many risks that follow a pattern of predictability.
However, catastrophic losses resulting from unpredictable climate change–related challenges pose a more problematic risk: The unpredictable nature of these changes and their impact can cause a few events to be lumped together. The result is that some insurers don’t have enough resources to cover those losses, or, at a minimum, the premiums collected for those specific insureds’ claims don’t cover their losses.
How Can Insurers Navigate Climate Change Risks?
Here are three steps insurance companies can take to deal with an increase in weather-related perils.
1. Identify Climate Risks and Update Insurance Underwriting
Auto insurance companies need to conduct an environmental risk assessment to identify climate risks in their areas and do their best to gather data indicating costs associated with past risks. Where possible, as an insurer, you should run various climate change scenarios and test their own resiliency. Based on the results, you can incorporate appropriate governance and environmental factors into your auto insurance underwriting. Adding a high-risk or non-standard insurance product to your offerings might also be a good option.
2. Encourage Customers to Cut Risk Exposure in High-Risk Areas
Offering a policy discount to consumers that incorporates risk reduction components to protect their vehicles can help reduce liabilities in high-risk areas impacted by climate change. This approach results in a benefit to both the insurer and the insured.
3. Communicate with Customers Early on and Frequently
It’s virtually inevitable that companies will need to increase auto insurance rates as climate change continues to increase risks and costs associated with liability and loss claims. When you know this is likely to occur, it’s best to communicate with your customers as soon as possible that the increase is going to happen, along with why and when.
Navigate Climate Change with a Top Insurance Leader
Now you have a better understanding of how climate change impacts the auto insurance industry, but do you know of a personal lines agency that can support you in navigating weather-related risks to come out on top?
At Confie, we are a personal lines insurance distributor leader serving a broad customer market within the United States. Contact us or call us today at (714) 252-2500 to learn more about how our offerings can help you manage auto insurance rates and policies to reduce risks associated with global warming and retain your customers.