Why insurance remains an ideal adaptation strategy to climate change

By Cynthia Ezekwe .

Climate change is increasingly becoming an area of engagement by many developing countries, as a result of how it affects many sectors across the globe, which have resulted in the  exploration of meaningful options for managing and transferring risks associated with climate change.

A 2019 Insurance  Banana skins report from PricewaterhouseCoopers International Limited (PWC),  and Centre for the Study of Financial Innovation (CSFI),  rated climate change as the second most urgent threat to businesses by reinsurers, and as the third by property and casualty (P&C) insurers.

The effects posed by climate risks have increased the need to adopt insurance as a strategy to cushion the damages.

This is because at the national and the local level, insurance helps create a space of certainty within which investments and planning can be undertaken. This allows for climate-resilient investments in climate sensitive sectors such as tourism and agriculture as well as in job creation and market development.

Insurance provides reliable and timely financial relief for recovery of livelihoods and reconstruction, thus providing security in the post-disaster period.

However, one of the biggest issues Nigerians face is how to understand, measure and effectively respond to climate change.

Some of the prominent challenges faced by Nigerian insurers include low awareness of insurance products among the general public which has led to low customer base;  clients having poor knowledge about insurance benefits. Environmental challenges such as communication barriers and poor wages received by potential clients also make it difficult for insurers to capture potential clients as people do not have adequate information or cannot meet premium costs.

As an industry dealing in risk management, Nigerian  insurers have been tasked with the responsibility to direct research, insight and investment towards climate risk mitigation efforts that measurably manage the impacts of climate risk.

Insurance players have a prominent role to play in mitigating the risks associated with climate change, given the fact that climate change in recent times has become one of the most discussed topics by insurance businesses globally and this is based on its looming impact on businesses, and the economy at large.

In Nigeria, some insurance businesses have been involved in conversations, tailored at discussing  the role of insurers, and how to foster adequate and appropriate preparations for the impact of climate change. A good example is the Leadway Assurance Plc, and its concerted efforts towards cushioning the effects of climate risks.

PWC in an advisory outlook tagged,”Climate change: Roles of Insurance Businesses in Nigeria, ’’ outlined various steps insurance businesses can take in mitigating the looming impact of climate change in the country.

The professional services network implored  insurance businesses to create an avenue where they can understand and work together to promote/embark on writing green/sustainable insurance products, such as  Pay as You Drive, pollution legal liability, warranty and service contracts for green technology, insurance in relation to carbon offsetting projects, etc,  which encourages environmental friendly behaviours and  helps the drive against the adverse impact of climate change.

“Insurance businesses should liaise with third party stakeholders such as government, policymakers, regulators, etc across various sectors in the country to address key barriers that may hinder insurers from scaling up their contribution to climate change, adaptation and mitigation as well as develop climate resilient public policies,’’ PWC advised.

The report encouraged insurance businesses to initiate talks around institutionalising climate change as a core business issue and also expand its contribution towards building financial resilience towards climate change and support for transition to a low carbon economy by collaborating with government, regulators and other key stakeholders.

PWC further urged government and insurance businesses to explore different ways of supporting climate resilience and decarbonisation of critical infrastructures through risk management, underwriting and investment functions, adding that green investment (i.e. green bonds/securities) should be embarked by the insurance businesses in order to make their investment portfolios less vulnerable to climate risk as well as to encourage sustainability and to support climate-related or other types of special environmental projects.