Jessica joined RWA in 2018, having graduated with a First Class Honours degree in Film Studies. Her role as a content designer involves developing new and engaging e-learning modules as well as assisting in the creation of articles for Insight.
As the UK faces yet another week of high winds and heavy rain, it comes as no surprise that we are hearing increased reports of both residential and commercial properties being affected by severe flood and storm damage.
One in four properties are now predicted to be at risk of climate change in the UK according to Andy Bord, CEO of Flood Re. He states that “the recent extreme weather across the UK this year has served to underline the impact that changing weather patterns are having in the UK”. If the weather patterns in recent years are anything to go by, we can expect to see more frequently unpredictable and intense conditions. With Flood Re’s levy and pooled risk system due to end in 2039, it is essential that steps are taken by the insurance sector so that it can long-term manage the risks of climate change by the time the scheme draws to a close.
Having a resilient market is already facing increasing challenges, even with a looming deadline ahead. With the increased frequency and severity of storms in recent years, insurance companies are finding it increasingly difficult to provide coverage for all high-risk areas, and as a result, more and more people are finding it “increasingly unaffordable” to insure themselves against flood risks.
A report from the Bank of England predicts that premiums covering flood and storm risks could increase indefinitely over the next 30 years if measures are not taken to mitigate the impact of climate change. This in turn could have a serious knock-on effect on those both living and working in high-risk areas. Properties built in areas prone to flooding, for instance, would likely become “prohibitively expensive” to insure or borrow against, or in some cases become “completely uninsurable”.
Why is Climate Change becoming a big risk for UK Businesses?
The devastating effects of climate change, high insurance costs, and the expectations to meet net zero targets by 2050 poses many difficulties for businesses, and that includes those in the financial services sector. The combined result of these factors can lead to significant financial and reputational losses if they are not properly managed.
Physical Risks such as flooding, storms, and heatwaves can have a lasting impact on business operations. This can include general disruption, damages to property and inventory, supply chain issues, as well as the potential health and safety risks to staff and visitors on site.
Regulatory Risks are another factor in relation to climate change. The requirement for businesses in the UK to transition to net zero urges them to adapt their business model or risk becoming unviable over time. Tighter regulatory restrictions, however, could potentially have negative consequences in that businesses could end up spending more in a bid to reduce their emissions.
There are also the risks to reputation to consider. As more consumers are becoming more conscious of their environmental impact, they are more likely to want to do business with companies with a better environmental track record. Businesses have a liability to be more transparent on what steps they are making towards sustainability, including those laid out within their Environment, Social and Governance (ESG) strategies.
Core business approaches for risk management should be looking to incorporate solutions for mitigating climate risks to ensure they main resilient. The effects of climate change are ever-changing, which makes it crucial that these strategies are reviewed on a regular basis.
Insurers have a unique role to play in how climate risks are managed, whether that’s adopting new technologies or developing new business models that aim to better protect their customers and their businesses.
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