How the insurance industry is working to protect your business against climate-related risk

Who does climate change affect?

While we often hear the term ‘climate change’, it’s difficult to know exactly what it means for people and businesses in their local communities.

According to the Met Office, climate change is pushing up our global temperature year on year, increasing the risk of events like localised flooding, forest mortality, fires, failing fisheries and a loss of biodiversity – to name a few. So far, it has been proven that climate change has a direct impact on the increased frequency of UK warm spells and UK cold spells, with the cold spells set to reduce over time.

If the global climate continues to change at the rate it is going, the world we live in will quickly become a very different place – and will likely become much more challenging.

Who does climate change affect?

There are two ways that climate can affect people and businesses, in the form of physical risk and transitional risk. Extreme weather events such as Storm Arwen would come under ‘Physical Risks’, whereas ‘Transitional Risks’ covers changes that occur after the event has taken place – such as a change in Government regulations. For example, implementing a low-emission zone in a busy city could be considered a transitional risk.

Climate change affects everyone in different ways, but among the industries that are most heavily impacted are agriculture and commercial fishing. This will also have a knock-on effect throughout the supply chain.

How climate change is affecting the UK

Consider some of the major climate-related events that have affected the UK in the past five years alone. We’ve seen major flood events in 2013/2014, 2015/2016 and 2019/2020. We’ve battled Storm Malik, Corrie, Arwen, Barra, Bella, Aiden… the list goes on. We’ve seen some of the hottest days on record in London. While the UK has always faced diverse weather conditions, the risk of flooding and other extreme weather issues is increasing in both frequency and intensity.

Major weather events can then put pressure on the insurance industry as the frequency of claims increases.

Protecting customers against climate-related risk

To help reduce our carbon footprint, many businesses across the insurance industry are working to reduce carbon emissions. As well, efforts are being increased to help protect their businesses against the risks presented by climate change and extreme weather. This includes schemes such as Flood Re, which ensures the industry can continue to provide affordable flood insurance to at-risk homeowners.