With the costs from extreme weather and natural catastrophes rising, Zurich Insurance has released a report highlighting the urgent need for action from governments, insurers, and communities to collaboratively build climate resilience.

According to the firm’s report, the past decade has seen $2 trillion in economic losses due to extreme weather and natural catastrophes, with a marked increase in recent years.

“The devastating human and economic costs inflicted by wildfires, windstorms, floods, heatwaves, droughts, and other extreme weather events will continue to rise, driven by long-term shifts in climate patterns, rising urbanisation, and higher population density in vulnerable areas,” Zurich added.

With this in mind, the firm has noted the critical role that insurance plays in offering protection to households, businesses, and governments, helping them recover financially from the effects of natural catastrophes.

“However, if the frequency of extreme weather events continues to rise, premiums for natural catastrophe insurance will need to increase to reflect the additional risk. This, in turn, will affect the level of protection that individuals and businesses are willing and able to purchase, with potential consequences for the overall functioning of the market,” Zurich explained.

Therefore, to safeguard against the impacts of rising climate risks, the firm has suggested that governments and policymakers should prioritise climate resilience through three complementary actions:

First, invest in risk prevention and reduction strategies by integrating climate resilience into national planning, establishing centres of expertise, and leveraging technology and insurance industry insights for better risk assessment.

Second, enhance insurance market accessibility, affordability, and transparency by supporting risk awareness, creating a regulatory environment that fosters competition and innovation, and allowing risk-based pricing to guide sustainable development.

Third, develop collaborative risk-sharing solutions through public-private partnerships and blended finance models to unlock private investment and share the financial burden of climate risks.

As per Zurich, this can include the creation of re/insurance pools to distribute risk and improve affordability, particularly in higher-risk areas, with private markets pricing the risks while governments determine how catastrophe losses are shared.

Zurich concluded its report by stating that addressing these challenges now will help ensure societies are better equipped to withstand and recover from the growing threats posed by extreme weather and natural catastrophes in the future.

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