The last ten years have been confirmed as the hottest decade on record for the planet. Undeniably, this is caused by climate change. As well as resulting in catastrophic storm damage and fires destroying homes, ten of the most extreme weather events of 2021 alone cost the world US$170billion , and 2021’s extreme weather has led to the largest pay-out for insurers in the last ten years .
Not only this, if climate change continues unchecked we are going to find a reversal of household and commercial heating demand due to the rising temperatures across the year. Demand for heating is likely to decrease across the winter and cooling demand will increase in hotter summers with air conditioning uptake increasing.
Flooding is already a major risk for many across the UK and is only projected to increase with climate change. Flooded homes can cause long-term and severe impacts on mental health and wellbeing, alongside the obvious damage to property. This risk is already classed as high magnitude with 1.9 million people across all areas of the UK exposed to frequent flooding from either river, coastal or surface water flooding . Again, this is projected to increase even further in the absence of higher levels of adaptation.
A further threat, already well known to insurers, is the issue of subsidence. Drier summers are increasingly becoming the norm meaning that houses in vulnerable areas will be more prone to damage due to the shrinking and cracking of the soil.
In terms of commercial properties, there are also risks in the move towards a cleaner, greener economy as businesses face major changes in asset values and business costs. For property investors this can translate to the green credentials of the buildings they own, with demand likely to be focused on the most sustainable assets, with the risk of buildings that don’t meet the desired criteria or government regulations becoming stranded assets.
Impact of extreme weather on UK insurers
The winter floods and storms in the UK in 2020 cost the insurance industry over £800 million and with climate change that is only likely to increase . This is a theme that can be found across subsidence claims as well, with claims increasing 49% between July 2020 and July 2021 .
To combat the effects of climate change, homeowners and business owners alike are beginning to invest and upgrade to greener properties. These properties are made to have a smaller carbon footprint than traditional buildings and constructions.
However, research carried out by insurance provider Neos states that 28% of homeowners say they have or know someone who has experienced an accident in their home caused by modern green appliances . These positive changes therefore have consequences.
Policy inception considerations and long-term risk
As we are becoming more aware of our impact on the climate and environment, property owners will be looking to implement these new technologies and products. Insurers and the wider industry need to be aware of potential issues at policy inception and the impact these products may have in the long term on potential risk. Luckily, not only are homes and commercial properties becoming greener, but they are also becoming smarter due to the advent of technology. We are now in a position where our smoke detectors and burglar alarms can be connected to our smart phones. Leak bots are becoming more mainstream, allowing property owners the benefit of being notified much earlier of potential escapes of water. Escape of water claims account for around a quarter of all claims made in the UK  and being able to combat this with modern technology will be an asset for insurance companies going forward. All this technology gives us the opportunity to be aware of issues before they become catastrophic for our homes and businesses. Insurers need to be aware of any eco additions to properties on existing policies, and vice versa in that policyholders need to be aware that they may need to disclose additions to their properties to their insurers for coverage to be accepted in the result of a claim. Insurers may be required to add ‘green upgrades coverage’ to their policies to ensure that the increased cost of repairing or replacing ‘green’ property is covered. As the world acknowledges and begins to tackle climate change, the insurance industry must also adapt to reflect the new and ever-changing risks posed.