STEP 3: MANAGE
BUILDING RESILIENCE AND MANAGING CLIMATE CHANGE RISK Restricting global warming to less than two degrees celsius might not sound like it would require a huge change and exercise in risk management, but journalist, Melissa Montang, discovers the reality is quite different.
“It’s clear that costs will continue to rise in time based on the increased severity and frequency of catastrophic loss, which of course will flow through to business owners and the consumers of their goods and services.
“I might sound a little utopian, but essentially everyone needs to pull together and do their bit. Governments, the insurance industry and individuals alike,” says Andrew Lester, Head of Property and Engineering - Broker and Agency at Allianz.
Lester notes two key areas that brokers can use to benefit clients: information and education.
“This includes things like investing in a low carbon economic future, balancing pre- and post-disaster recovery funding, well considered urban planning and building codes, sensible and nuanced public discussion to strike the right balance between risk mitigation and environmental protection." Without management, the insurance industry is likely to see the impact of climate change as this increased risk cannot be simply absorbed, predicts Lester. The increased net loss burden coupled with catastrophe reinsurance costs that will generally focus on the increased level of severity risk need to be factored into costing and pricing models. “With this in mind, the priority is to acknowledge that the risk profile of most Australian households (mine included!) and businesses will continue to increase. With this increased risk profile comes a greater emphasis on the need for robust risk assessment, well considered continuity planning and mitigation and a balanced approach to risk transfer with regards to coverage, self-insured retentions and premiums.” THE ROLE OF BROKERS IN HELPING CLIENTS TO MANAGE RISK Lester notes that the Australian broker community does a fantastic job as advocates for clients and operating as trusted advisors in risk assessment and risk transfer solutions. “Climate related risk is no different, in that by consulting with and helping their clients to understand the specifics of their current risk profile, as well as how future business strategy may be impacted by this changing risk profile is critical in determining the correct course of action,” he says.
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“Firstly, by focussing the client’s attention on risk assessment and understanding that risk mitigation has a direct link to the future health of their business, brokers would certainly benefit their clients by spending time developing risk control frameworks that include business continuity plans, capital expenditure allocation balanced between business growth and asset protection as well as a clear risk appetite between retained and transferred risk. “Secondly, keeping on top of the trends and ensuring early engagement with the risk transfer markets. This will help educate the clients on the mechanics behind availability of capacity and conditions of cover specific to natural perils risks and help ensure sustainability of protection along with managing the allocation of costs.” RESEARCH DRIVEN RISK MANAGEMENT AND RESILIENCE BUILDING Dave Henderson, Chief Research Engineer at the Cyclone Testing Station (CTS) at James Cook University notes that in terms of climate change, a great deal of research has been
We need to keep looking at innovations as they come out. There may be new materials that become available, but we need to be sure they are fit for purpose and don’t come with unintended consequences.
