Threats and Opportunities for Insurance Companies

Threats and Opportunities for Insurance CompaniesClimate budge has become one of the most great aspects of our daily lives as it has a deep tinct on our agreements and the world(a) hale being of humanity. such unprecedented change in the modality has resulted in extreme tragedys such as hurri raftes, floods, wild fires, etc. The loss caused by such accidents is not limited to the general public, but is further passed on to industriousness, which thrives on the idea of netherwriting assets.The industries core belief is to quantify the uncertainty of an unforeseen event. But as these events are growing in frequence and size, it impart continue to quarrel the sustainability of restitution companies. Inevitably, it leave transfer the burden to the restitution purchaser, as amends companies provide seek prouder amplitudes for their products, which will all make it slight holdable for the masses to afford essential insurance coverage. In this quiz we will discuss t he various challenges that the effort faces due to mode change, the assertable ship provokeal to mitigate the holy terrors, and then the scope of more opportunities arising out of the granted change.Climate change tummy be seen as a threat to many insurance companies in the massive term as advantageously as the short term. IPCC (2007) has confirmed an add in the frequency of the catastrophe in the recent years. Insurance claims running into billions of dollars disregard cause a huge dent in this industry, which makes up up-to 10% of the US economy. It is only natural for insurance companies to charge high agiotage for those asserts. Which are open(a) to high risk of exposures, making it less affordable to the market. The chairman of Lloyds of London quoted that climate change is the number- one issue for that massive insurance group. And also Europes hulkingst learnr, Allianz, express climate change stands to increase insured losses from extreme events in an averag e year by 37% within just a decade (Hawker, 2007,p.28).In the past, insurance companies have relied on previous info to formulate policies. But such a practice has only caused high losses as the climate is changing in a fast way. Warren buffet pointed out insurance companies suffert simply vulgarise past experience. If there is a is truly global warming, for example, the odds would shift, since flyspeck changes in atmospheric conditions can produce momentous changes in run patterns. indeed refreshed techniques such as risk trouble system (RMS) are used extensively by insurance industry for assessing and managing risks.Hurricane Andrew caused a loss of $23 billion to insurers as they paperd their policies after relying on past data. However, the same industry had a much smaller impact when hurricane hit the US coast in 20004 and 2005, as they used upcoming risk models such as RMS to formulate policies (Herweiger et. al., 2009).Climate change leads to increase damage and cos ts as ever increasing level and long lasting wildfires are causing more claims and property damages. Such frequency and magnitude of potential losses can jeopardize the solvency of insurance and reinsurance companies.Sustainability can be insured if the wedded threats are dealt with adequately. Insurance industries have a history of fostering practices and technologies to take risks. Some of the possible and effective ways to mitigate risks are, firstly, a lesser pension can be charged from customers of motor insurance who drive hybrid cars or use salary as you drive scheme. Special benefits can be given to customers who taint vehicles jointly to use them under car pool system. second, a button up association with government agencies to improve land use planning, better management of forestry agriculture and wet lands can help in having a well balanced growth that does not put to much pressure on natural resources. Collaboration with private builders to promote, improved buil ding codes, which insure stripped-down damage to the environment, lower energy requirements and long-term durability. Thirdly, building awareness amongst clients and reflection of public policy. Companies can provide information and education to customers about the damaging effects of violating laws of nature. Consultation should be given to primary and secondary industry to reduce their impact on their immediate environment. .Many insurers have already made investments in kelvin projects like re recentable energy, energy efficiency, forestry projects and green funds to ensure that their customers receive protection and also saving them from large claims (Mills, 2007,p.7). Promotion of voluntary energy saving and energy efficient codes can help reduce our dependence on say electrical supply. progressive participation from insurers such as AIG offer its Private Client congregation a service in which crews are deployed to apply fire lag in areas such as Colorado which are haz arded by wildfire.Climate change can prove as a rattling big hazard for insurers as the unpredictable climate can threaten their customers and lead them to insuring their assets. However they must adapt timely successfully.Responding to change is important as it brings opportunities. Insurance companies should develop new solutions and introduce insurance of new assets and risks for their customers changing needs. It is also seen that the Insurance industry is in constant hunt of better returns for its vast investments. In this regard it could take advantage of the opportunities procurable in alternative energy sources as it is a good investment as constant technological developments make this it more affordable and seductive for the public.Introducing new products such as risk based pricing under which insurance premiums are charged as per their risk exposure. For normal policies, premium is charged by keeping various factors in hand, but the premium is standard for all, no c onsideration is given to a policy holders risk exposure. For example- buying car insurance in UK, Any mortal higher up the age of 21 is charged a basic insurance premium which is more or less standard. However when it comes to providing insurance cover to an individual below the age of 21, the policy premium is charged at a much higher rate, as the possibility of an accident is much higher as these new drivers are mostly inexperienced.Another opportunity comes from state help, in form of promotion, because If the majority of the population do not insure their properties then in case of a catastrophe, the financial burden will fall on the state insurers, so to save from this burden, governments promote and opt private insurance companies. Thus making it profitable for private insurers as well as the government.Some of the possible ways to tap the usable opportunity are firstly by energy saving insurance, which is given to promoters of energy efficient projects to protect them fro m loss due to underachievement of predicted energy efficiency. Secondly by motor insurance where packages such as pay as you drive insurance are given, in which cover is given for the miles driven. This helps to reduce miles driven by 10 % to 15 % and also reduces accidents. Thirdly by green building insurance, insurance schemes for buildings that comply with green, eco friendly codes. Fourthly by micro insurance, where the majority of the population living below poverty line, cannot afford insurance of any sort. Therefore new packages for this section of the society can help to capture a very large customer base. fifthly by investing in alternate energy sourcesAs they can help to get a much higher returns to the surplus investable great(p) of insurance companies, as this sector holds great promise for better, cleaner greener energy, done technological innovations. And lastly by improved identification of flood plains will help to promote insurance purchasing in the marked areas. by and by exploring the implications of climate change on the insurance industry, I have shown above, the threats opportunities that the insurance companies face.By comparing both sides of the argument, I believe that the insurance industry faces more threats than opportunities due to climate change. An ever-increasing catastrophe rate, sparked by excessive climate change has lead to increased financial losses, reduced customer base in some case cases complete wipe out of companies. Therefore it is only right for these companies to mitigate these risks in order to insure sustainability.In the given scenario, there also exist enough opportunities to develop new business models and increase revenue through new policies, revised warlike rates. Many untapped market segments, which remain untouched by industry, can provide high revenues. Adequate investments in research and technology will be beneficial for the industry. Above all, a close association with the general public, govern ment agencies private sector enterprise will help the insurance industry to protect itself from the dangers of climate change and provide sufficient opportunity to grow in size.