The impact of climate change on Life & Health

For the Life & Health (L&H) insurance industry, there is already increasing focus on fairness and financial stability, competitive markets, and cost management pressures. So, one may ask, do we also now need to pay attention to the climate impacts on our customers and our business?

The answer is yes – because climate change is creating both risks and opportunities for the L&H industry.

The Swiss Re Institute estimates that over 50% of global financial needs remain unprotected in the event of a breadwinner’s death. A staggering USD 409 billion is the estimated difference between losses caused by death of the main income provider and existing household incomes. And that financial gap almost doubles to USD 747 billion when it comes to medical expenses.

Then add on the impacts of climate change - as the earth gets hotter, this creates more extreme weather conditions, such as storms, droughts, heatwaves, and floods. These conditions not only damage homes and property, but they also cause deaths, injuries and impact our food supply, nutrition, air quality and spread of disease.

For individuals, this can increase the potential for injury and death from weather events and aggravation of pre-existing conditions exacerbated by extreme heat and cold, and poor air quality. When we scale this up to a system level, the broader industry is subsequently impacted by more people unable to work due to illness and injury, as well as the heightened pressure on health systems - similar to what we witnessed during the Covid-19 pandemic.

The World Health Organisation estimates that between 2030 and 2050, climate change could cause approximately 250,000 additional deaths per year, from malnutrition, malaria, diarrhoea, and heat stress. Particularly alarming is that developing markets will be the least equipped to manage these challenges.

We need to adapt – society needs to make changes to live in this warming world. Whilst the upfront costs of adaptation may seem overwhelming, the benefits are larger. Consider this: a US EPA study found that the 1990 Clean Air Act Amendments had benefits exceeding costs by a ratio of 25:1. The result of the study showed that by 2010, 20 years after implementation, American society had reaped the cumulative benefits of 1.8 million lives saved, 1.3 million heart attacks prevented, 137 million days of extra work / productivity and 26 million more school days – all due to reduced pollution, which in turn improved community health.

New risks and new needs offer fertile ground for product innovation and growth. The Swiss Re Institute's Resilience Index 2022 estimate a global protection gap to approximate USD1.8 trillion in premium. This is in part due to the rising middle class in high growth markets such as China and emerging Asia.

Swiss Re looks at the opportunity space under what we call the '3As':

• Availability - What do you need, and does what you need exist?
• Accessibility - Where can you buy it, and who will sell it to you?
• Affordability - Do you have the resources to buy what you need, and does it bring you value?

The Swiss Re Institute Inclusion Radar measured these attributes in more detail across a selection of 16 markets, which included a mix of five advanced and 11 emerging markets. Interestingly not one country assessed rated high on all three criteria. This shows there is opportunity for many in the L&H industry to improve product offerings, distribution and expertise – making products more inclusive and addressing the growing protection gap that is being exacerbated by climate change.

To start better understanding and managing the emerging risks and potential opportunity, the L&H industry needs to:

• Understand customer needs – research and listen to customers and communities, especially those impacted by climate change and experiencing more pressure on their income and livelihoods 
• Form strategic partnerships – there exists a significant opportunity for re/insurers to partner with public and private sector stakeholders to gather richer data, better map and model the evolving climate, mortality, and morbidity trends. Working together, the industry can create a comprehensive understanding of, and thus solutions for, new customer groups at scale
• Maintain regulatory dialogue – initiate discussions early on and work proactively with government stakeholders who are also keen to understand potential impacts and opportunities. This collaborative approach can help to balance innovation with consumer protection
• Continue with product innovation – design simple, more affordable products with efficient, inclusive underwriting. Innovation does not have to mean complexity; focus on simplification and inclusivity.

The pathways to more inclusive – and climate adaptive – insurance will require effort, and possibly even a change of mindset. With climate change driving global economic losses from natural disasters and weather events of USD 275 billion over 2022, this number is going to significantly increase once we add in the economic loss related to health, livelihoods, and productivity.

As we acknowledge and seek to understand what climate change means for the L&H sector, let's commit to creating inclusive and effective products and maintain an industry that is Available, Accessible and Affordable.