Zurich’s roadmap to building climate resilience in a more volatile world

Zurich Insurance Group (Zurich) today released a report emphasising the urgent need for coordinated action against the rising threats posed by extreme weather and natural catastrophes.

The report outlines the increasing costs of these events, highlights the role of insurance, and offers recommendations for policymakers to build resilient societies and economies.

Extreme weather events such as hurricanes, floods and bushfire caused about USD 2 trillion in economic losses over the past decade according to the International Chamber of Commerce, equivalent to over AUD 3 trillion. The frequency and intensity of these events are increasing, potentially exacerbated by long-term climate shifts like temperature variations, rising sea levels and changes in precipitation patterns.

Insurance is crucial in protecting households, businesses and governments, helping them recover financially from the effects of natural catastrophes. However, insurance coverage is not keeping up with growing losses, leading to more underinsured or uninsured households and businesses.

Alex Morgan, Head of General Insurance, Zurich Australia & New Zealand said: “The impact of extreme weather on the Australian economy has more than tripled over the last three decades¹. These events are no longer once in a century, they are the status quo, and communities are not adequately prepared or protected.”

“The insurance industry is uniquely positioned to provide risk intelligence and resilience-based solutions to growing climate risk, however, it is just one part of the solution. The role of public-private collaboration and robust policy frameworks are a necessity if we are to improve community resilience and tackle underlying risk.”

“In Australia, the elimination of development arrangements in high-risk areas, for example, could significantly reduce this underlying risk. Where homes and businesses already exist, improving public disclosure of underlying risk and further investing in ongoing community mitigation and resilience would also have a significant impact,” Mr Morgan said.

In its report, Zurich advocates for a new approach that focuses on risk reduction and extending insurance coverage to protect communities and businesses. The insurance industry can provide risk management insights and capabilities to strengthen resilience to physical climate risks. By de-risking capital flows, the industry can also help unlock the necessary finance to build the infrastructure required to deliver that resilience, enhancing the protection provided by insurance.

However, the insurance industry cannot tackle this challenge alone. A coordinated effort between the private and public sectors is needed. This paper makes three recommendations for policymakers:

1. Invest in risk prevention and reduction: Governments should make formal commitments to strengthen climate resilience through robust strategies and the implementation of building codes and urban planning regulations. Measures include building climate resilience into national planning, establishing national centers of competence, and making more effective use of technology, data analytics and scientific research.
2. Enhance insurance accessibility and affordability through supportive policy frameworks: Governments can raise awareness of extreme weather risks and offer incentives for households and businesses to obtain adequate insurance. This can be achieved by establishing a regulatory environment that sustains market capacity, attracts new entrants, and fosters competition and innovation to broaden coverage options for consumers.
3. Develop public-private risk-sharing solutions to raise finance climate resilience: Innovative solutions such as blended finance can help share resources and distribute risks, improving affordability and preventing the development of “insurance deserts.” Public-private partnerships (PPPs) can enhance insurance accessibility and affordability, especially in higher-risk areas.

Zurich remains committed to building a more resilient future, ensuring that communities and economies can thrive despite the growing challenges posed by climate risks.

The full report can be accessed online: Climate Risks: Strategies for Building Resilience in a More Volatile World

¹ Insurance Council of Australia

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