Speakers from across financial backgrounds came together Thursday afternoon to discuss the role of risk science and the insurance sector in assessing and managing climate risks and implementing climate resilience solutions.
The symposium, which took place in Penn Pavilion, is the first in a new Climate Collaboration Symposia series funded by a gift from The Duke Endowment in support of the Climate Commitment. The event was hosted by the Nicholas Institute for Energy, Environment and Sustainability and Duke Risk Science for Climate Resilience, led by RESILE, "a new university-wide initiative to advance research related to climate risk."
“This is a space to build … long-term relationships with communities and really invest time into specific communities and be intentionally thinking about near-term and long-term resilience issues and specifically how you bridge the issues of right now to the issues of the future,” said panelist Alison Dejong, planner and policy researcher at the Water Institute.
The event was hosted by Mark Borsuk, director of Duke RESILE and co-director of the Duke Center on Risk; Lydia Olander, ecosystem services program director at the Nicholas Institute and adjunct professor at the Nicholas School; and William N. Ferris, executive director of Duke RESILE.
With climate change causing natural disaster occurrences of increasing frequency and intensity, the cost of disaster related infrastructure damages is ever-increasing. The insurance sector is threatened by enhanced risk of such climate-related “perils,” which leads to insurance providers pulling out of property markets in Florida and California and driving up home insurance premiums.
Such actions by insurance agencies negatively impact consumers, who are also the victims of these climate disasters. Panelists and keynote speaker Frank Nutter, president of the Reinsurance Association of America, discussed how to implement community adaptation strategies and innovate within the insurance and reinsurance sector to address this issue.
Nutter defined the reinsurance sector as “the insurance of insurance companies.”
“For the most part, the reinsurance sector picks up a disproportionate amount of the insured losses that the insurance industry takes on,” Nutter said. “It’s pretty consistently about 50%.”
Nutter highlighted the importance of risk considerations, identifying a consistent “insurance gap” across disaster events. Insured losses typically make up only a third of the total economic losses for most major events, with the remaining two-thirds passed onto the communities, municipalities and ultimately the federal government.
Nutter went on to suggest a variety of policy advocacy solutions to address this issue while increasing community climate resilience, which ranged from expanding funding earmarked for adaptation in the Disaster Recovery Reform Act to removing federal income tax on climate mitigation grants.
He also discussed the uncertain future of property insurance as the industry moves away from an actuarial approach to a more forward-looking stance that considers comprehensive climate risks.
“It’s kind of [like] driving a car by looking in the rearview mirror. It’s built on historical loss information trended forward primarily using economic factors,” Nutter said.
The latter half of the symposium consisted of a panel featuring many public and private sector professionals. Dejong was joined by Mahmoud Raya, associate director in the financial institutions, energy, and climate and sustainability at Boston Consulting Group; Francis Bouchard, managing director for climate at Marsh McLennan and Duke University’s Climate Leader in Residence; and Roger Grenier, senior vice president of Global Resilience Practice at Verisk.
The panel touched on the requirement of utilizing a transversal risk framework, which takes into account climate risks faced by a host of stakeholders across different levels of influence, in the financial planning and decision-making for institutions.
“Figuring out how to assess the second, third, and maybe potentially even fourth order impact is critical for local, state and local governments,” Raya said.
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