A new report from the Chartered Insurance Institute (CII) discusses the environmental challenges that lie ahead, concluding with three possible scenarios and the potential implications for the insurance sector.
'Climate change and energy security – global challenges and implications', sets out three potential future scenarios (upside, central and downside), based on the insights of five world leading experts in specially-commissioned essays.
The report is the third in a series on future risk, to mark the centenary year of the Institute.
The report highlights the need for the insurance and financial services sector to remain "one step ahead" in order to provide "comprehensive insight into the changing nature of environmental challenges facing the world, and to recommend credible courses of action in the face of them."
Essay contributors include, professor Sir John Beddington, chief scientific adviser for the government, professor Lord Julian Hunt and Dr Yulia Timoshkina of University College London.
The first scenario, the upside scenario, sees the world sufficiently shift to renewable energy sources. Supported by the insurance industry, which provides economic incentives for sound adaptation, governments develop sophisticated infrastructure and warning systems allowing them to adapt to any remaining climate risk.
In the central scenario there is limited effort to adopt sustainable practices, which will see isolated instances of the insurance market withdrawing cover for certain individuals and firms and occasional insolvencies stemming from catastrophic weather events.
Finally in the downside scenario, there is little if any effort to move away from the dependence on fossil fuels, thus irreversible tipping points are breached and adaption becomes extremely costly.
Speaking about the report Ben Franklin, CII policy and research coordinator, said so-called 'future gazing' is not definitive but the three scenarios outlined can help insurance and finance professionals prepare for some of the challenges they may face in the future.
"There is clearly an important role for insurers to play in securing the wellbeing of the industry and the customers it serves. Engaging with government to influence policy making, developing new products and pricing strategies to incentivise better adaptation and providing counsel to other professionals such as architects and civil engineers will be crucial to achieving this aim."