Insurance Futures: Global trends and issues reshaping the insurance landscape to 2035




The long-term security of coastal regions depends not simply on climate, oceans and geography,
but on multiple local factors, from the politics of foreign aid and investor confidence, to the
quality of resilience-oriented designs and ‘managed retreat’.

Take some examples. In 2017, the drought in Cape Town and lack of resilient water infrastructure
led to a downgrade by Moody’s. Wildfires in the Trinity Public Utilities District in California
led to similar downgrades in 2019. Moody’s have developed a ‘heat map’3 that shows the credit
exposure to environmental risk across sectors representing US$74.6 trillion in debt. In the short
term, the unregulated utilities and power companies are exposed to ‘elevated risk’. The risks to
automobile manufacturers, oil and gas independents and transport companies are growing.
Blackrock’s report from April 2019, focused primarily on physical climate risk, showed that
securities backed by commercial real estate mortgages could be confronted with losses of up
to 3.8 per cent due to storm and flood related cash flow shortages.4 Climate change has already
reduced local GDP, with Miami top of the list. The report was amongst the first to link high-level
climate risk to location analysis of assets such as plants, property and equipment.

In other words, adaptation and resilience options are also uniquely local. The outcomes hinge
on mapping long-term interdependencies to predict physical world changes and explore how
core economic and social systems transition to a sustainable world.

Publication Date: July 2021

Publication Site: International Insurance Society

Resiliency vs. efficiency



I expect some big institutional changes to be coming our way soon. One favorite debate, at least according to the editorial page of the Financial Times, is the trade-off between efficiency and resilience. Buying all your goods from China, including PPE, may be efficient—but if you have a global pandemic, then it means that you’re not so resilient. Or, if you live in Texas, cheap energy is great when you blast your air-conditioning every August when it’s 110 degrees outside, but if there’s a crazy cold snap and your power gets shut off, you see that your system is actually not that resilient at all.
We already see the Biden administration taking on resiliency, as he is trying to revive domestic manufacturing. And we can expect some soul searching in Texas as well. But I’m not convinced that we’ll get the big overhaul, because the problem with resiliency is that it can be extremely expensive, and once we forget about the shock, we don’t want to pay for it anymore. It’s expensive if you define resiliency as the ability to seamlessly handle a once-in-a-lifetime tail risk that you never saw coming. People like cheap power and goods, and those things help the economy grow.

Author(s): Allison Schrager

Publication Date: 1 March 2021

Publication Site: Known Unknowns