Climate Intelligence sure will help salvage the losses to humankind but there are financial risks from climate disasters that one needs protection from. For such losses, insurance needs innovation. The challenge lies in the right assessment and pricing for these new financial risks. It is no surprise to learn that insurance coverage for such financial risks caused by climate change can be quite expensive and at times it may not be available at all for some specific climate risks. AON’s annual report on weather, climate and catastrophe, global economic losses from natural disasters pegged at USD 268 billion in 2020 while the global protection gap or the difference between global economic losses and assets covered provided by insurers amounted to USD 171 billion. As this protection gap widens, it disproportionately affects many. For example, in the US, those in the Midwestern flood plains having insurance against flooding has dipped by 15% in the last decade.
There is business in every opportunity and hence, new insurance products have been brought to the fore by businesses that are making use of alternative data sources, AI, and real-time analytics to peg the pricing of these risks more precisely. The industry has stood up to this challenge by introducing parametric insurance. It differs from conventional insurance as it provides a fixed sum of compensation automatically when a certain predefined event takes place (such as wildfires), while conventional insurance gives the policy holders compensation for the actual losses. This basically means that while claiming Parametric insurance the losses of the policy holder need not be verified. The compensation payment is given when the requirements are met, for example a hurricane of X intensity, or XY mm of rainfall etc.
Technology can also help all parties involved in the insurance process, right from a hassle-free claims process for the insured to helping insurers in predictions and preventing claims, thus protecting lives and helping maintain the balance sheets. Even those who have less insurance coverage or none at all, when the transaction costs are lowered due to automation, would be able to afford insurance.
Insurance company Hippo based in Palo Alto, California, is in the lead as the firm makes use of smart home sensors and internet of things (IoT) technology to point out and foretell damage before it happens, lessening the impact of such events. Even after an event, AI can help in quick and precise processing of claims, thus putting customers on the path to recovery even sooner. While we cannot say enough has been done in this arena, we can only hope more AI start-ups take up the cause and we overcome the dreaded climate emergency.