Heatwaves, droughts, hurricanes, floods... in a year of commodity shortages and supply chain disruptions, a host of extreme weather events have added stress to the system. So how do companies address the financial risks associated with these events? Catastrophe bonds and reinsurance markets have existed for a long time, but the more extreme the disruptions, the more these industries change. On this episode of the podcast, we speak to Steve Evans, owner and editor-in-chief of Artemis.BM, about recent developments, new types of insurance products and how financial markets are incorporating the effects of climate change.
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12/08/22 • 46 min
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Odd Lots - What Extreme Weather Events Are Doing to Global Insurance Markets
Transcript
Hello, and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway and I'm Joe. Do you know what day it is? It's a very special day, like literally the day. What do you just tell me? It's novemb okay, do you know what novemb go on. By the time this episode comes out, it will not be November, but we are recording it at the end of the month, and it is the end of hurricane season. Oh, I did it right, So this is officially when this
What Extreme Weather Events Are Doing to Global Insurance Markets Top Questions Answered
What is parametric insurance and how does it work?
Parametric insurance is an insurance contract that triggers based on specific parameters of an event, such as wind speed or earthquake intensity. Instead of assessing individual losses, it pays out predetermined amounts when the predefined parameter is met.
Why is parametric insurance beneficial in developing countries?
Parametric insurance is beneficial in developing countries because it provides quick claims payments without the need for lengthy assessments. It helps businesses affected by bad events receive capital inflows, which is especially crucial in areas where aid inflows are slow.
How do climate change and government regulations impact insurance coverage?
Climate change and government regulations have a significant impact on insurance coverage as they influence the thinking around risk assessment and pricing. Insurers are exposed to legislative changes related to climate change, and climate disclosure requirements may lead to increased demand for risk transfer and insurance.
What are some niche risks that can be protected against with parametric insurance?
Parametric insurance can protect against niche risks such as elevated river levels or non-damage business interruption. It allows businesses to mitigate specific risks that are not traditionally covered by standard insurance policies.
What role do catastrophe bonds and weather-related insurance play in the insurance industry?
Catastrophe bonds and weather-related insurance raise questions about whether certain risks should be insured at all. They provide a mechanism for transferring risk to the capital markets and allow insurers to manage their exposure to catastrophic events.
How do higher benchmark interest rates affect the insurance market?
Higher benchmark interest rates can have both negative and positive effects on the insurance market. It can impact investment returns and the profitability of insurers. Additionally, it may influence insurance rates and pricing.
How do insurance-linked securities (ILS) help the insurance industry manage extreme weather risks?
Insurance-linked securities (ILS) market has grown due to improvements in weather modeling. It allows insurance and reinsurance companies to tap into a deep pool of capital to cover peak events. ILS provide diversification and are seen as uncorrelated to the overall economy.
What factors have impacted the investor demand for insurance-linked securities?
Investor demand for insurance-linked securities has declined due to financial market pressures, severe weather events, and global events like the war in Ukraine and inflation. These factors have influenced the market dynamics and pricing of insurance-linked securities.
How have catastrophe models helped the insurance industry manage catastrophe risks?
Catastrophe models have helped the insurance industry understand and assess catastrophe risks. They provide insights into the potential impact and frequency of extreme weather events, enabling insurers to better manage these risks and determine appropriate coverage levels.
What is the estimated size of the insurance-linked securities (ILS) market within the global reinsurance market?
The insurance-linked securities (ILS) market is estimated to be around $80 to $100 billion within the global reinsurance market. This market has grown in recent years, offering alternative risk transfer options for insurers and investors.
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