Speakers at ITC Vegas, the world’s biggest insurtech event, addressed how insurance and technology combine to meet the challenge of making climate risks insurable.

The fundamental challenge facing the insurance sector – to remain relevant, to insure climate risk, and to underpin the economy’s green transition – is about becoming more forward-looking for an industry used to checking its rear-view mirror.

That was the buzz from speakers at ITC 2022 in Las Vegas and led by comments by Juan Andrade, CEO, Everest Re.

“Stop just looking in rear-view mirror and look forward,” Andrade told ITC Vegas. “Our industry has always been about indemnity – paying claims – but that’s after the fact, so how do you evolve to prevent something from happening?

The answer, he explained, is to use better data and analytics and insurtech innovation to ascertain which properties face flood or wildfire risk and then getting preventative intelligence to customers to mitigate a loss before it happens.

“These are new technologies with no data and no historical experience,” Andrade said. “The fundamental issue is that we look in the rear view mirror when we’re pricing and when we’re setting terms and conditions.”

Behavior changes happen based on known information, and that begins with data, noted Christina Colby, Chief Customer Officer, Guidewire. “From there you can glean meaningful trends, and only from there can you start to act on those insights,” she said.

Models and data for secondary threats – primarily floods and wildfire – were too long neglected, speakers agreed, relative to the peak property catastrophe hurricane and earthquake perils.

“If you look at climate signature perils, we haven’t invested in location data,” said Michael Steel, General Manager, RMS. “A lot of innovation around data quality and data capture are investments to give us higher resolution data and much more complex models.”

Flood losses are woefully under-insured, noted Raghuveer Vinokillu, Climate Resilience and Solutions Lead, Munich Re. He highlighted that US inland flood losses hit $30bn in the past five years.

“Of that, $20bn was from 2019 Mississippi river floods, only $200m of which was insured, less than 1%. Secondary? No way,” he added.

Seth Rachlin, Global Insurance Industry Leader, Capgemini, took aim at the notion of secondary perils. “You call it a protection gap; I call it a protection chasm. Flood is still considered a secondary peril, and to me, secondary means less important,” he said.

Much climate data being used by insurance, such as Environmental, Social, Governance (ESG) ratings, was not developed with other industries in mind.

“We found that we could only get ESG scores for around 30% of our book of business,” said Rakhi Kumar, SVP Sustainability Solutions, Liberty Mutual Insurance.

Similarly, long-term stress tests mandated by regulators do not suit the sector, she suggested, focusing on chronic climate risk, not the acute climate risk that generates losses for insurers and requires cat model overlays.

The transition towards supporting a low carbon economy could yet be the biggest challenge – and opportunity – facing insurance.

“We are seeing a tremendous shift in capital from dirty energy to cleaner energy. I don’t think we’ve seen a shift like this since the first industrial revolution,” said Andrade.

Speakers urged collaboration with technology, governments, and other sectors.

“It’s going to get very lucrative for first movers. If we can identify how to price and how to underwrite emerging risks, it will be a game-changer,” said Andrade.

The alternative is between pockets of uninsured risks or pockets of opportunity, Kumar warned.

“The conversation we need to have is for resiliency and resilient infrastructure,” she said. “If we pull back, it doesn’t mean climate change goes away, it just means governments and tax payers are left holding the bag.”

Andrade was upbeat that the industry continues to serve a noble purpose. He cited a Deloitte study finding two in five millennials had left a job or didn’t take a job because it didn’t fit their values.

“The younger generation is very much purpose driven,” he said, noting the vital importance of communicating purpose and maintaining an honest culture in which people feel included and driven to develop and thrive.

“All of these things matter and if you are able to put them together, they retain people and make them feel satisfied with their job,” he added.

Connection between a positive culture for diversity and inclusion and to exposure such as Workers’ Comp or D&O liability should be a strong driver for developing ESG, speakers stressed.

“The moment you can start to join the dots, it makes ESG scores real,” said Steel. “It starts to create standards in the market, to create that currency around ESG risk and create opportunities to move forward and recognize it.”