Without a change in behavior, climate change has the potential to reshape the global economy, according to Guy Carpenter’s new report on the risk landscape for public sector entities, Protecting our Planet and the Public Purse. Several provincial and state governments are focusing on mitigation measures in order to attempt to alleviate the economic impacts associated with climate change.
Regulatory scrutiny is also increasing in various countries, with certain jurisdictions highlighting the risks posed to the global financial system by the physical, transition and liability risks associated with climate change.
Given climate change has the potential to cause economic and systemic instability, it falls within the purview of prudential regulation. Extreme weather events linked to human-driven climate change clearly bring physical risks that could impact economies. And moving towards a less polluting, greener economy means that some sectors of the economy face the prospect of a significant shift in asset values and/or higher costs of doing business.
It is nevertheless important to point out that the (re)insurance market is well placed to help governments confront this uncertainty and volatility. The (re)insurance sector remains well capitalized and the level of sophistication and expertise developed over decades in addressing previous market-changing events puts it in a strong position to confront the prospect of more frequent and severe weather events in the future. The sector also has the knowledge and expertise to help stakeholders develop a more robust risk management framework to mitigate climate-related issues.