Under the influence of climate change, the global property insurance industry is experiencing an unprecedented pricing revolution. The traditional risk assessment model based on historical data is failing, and insurance companies have to re-examine the risk pricing logic to cope with the increasingly frequent and severe impact of climate disasters.
The frequency and intensity of extreme weather events such as storms, floods and droughts are increasing exponentially, which directly leads to an explosive upward trend in property insurance losses. In the past decade alone, the global climate-related insurance claims have tripled, forcing insurance companies to rebuild their risk assessment systems. The traditional geographic information system (GIS) model now needs to overlay real-time meteorological data, climate model prediction and artificial intelligence-driven disaster simulation, in order to describe the risk map more accurately.
The core of insurance pricing lies in the dynamic balance between risk and premium. Climate change has upset this balance: the once-in-a-century flood may occur once every ten years, the hurricane path becomes unpredictable, and the wildfire season continues to extend. Insurance companies are introducing climate risk factors, including carbon emission intensity, regional adaptability and other indicators into the pricing model. Some innovative enterprises have begun to adopt the strategy of "climate-sensitive pricing", offering premium discounts to customers who adopt green building standards, and at the same time implementing differentiated rates for high-risk areas.
The reinsurance market is the most sensitive. Global reinsurance companies have embedded climate science data into the capital allocation model, requiring direct insurance companies to provide more detailed climate risk exposure reports. This change in the upstream of the industrial chain is being transmitted to the retail end, forcing the whole industry to speed up the iteration of the pricing model. The combination of advanced climate model and big data analysis technology enables insurance companies to more accurately predict the trend of climate risk changes in specific regions in the next few decades, so as to fully consider the cumulative effect of long-term risks when pricing.
It is worth noting that the phenomenon of "insurance desertification" caused by climate change is beginning to appear. Some coastal areas and disaster-prone areas are facing the dilemma of soaring premiums or even no insurance coverage because of high risks. Insurance companies are exploring the risk sharing mechanism, trying to find a new balance between insurability and sustainability through innovative products such as public-private joint venture climate adaptation fund, regional risk pool and parametric insurance.
This pricing revolution requires the insurance industry to complete the role transformation from passive compensation to active risk management. By subsidizing flood control facilities, promoting the upgrading of building codes, and developing climate-resilient community projects, insurance companies are taking defense costs into consideration in pricing, achieving the dual goals of risk reduction and business sustainability. Climate intelligent insurance is not only related to the survival of the industry, but also will become a key component of the global climate adaptation strategy. Insurance companies are actively using big data analysis technology to deeply study the long-term changing trend of climate risks, ensure that these potential risks are fully considered in the pricing process, and provide more stable financial guarantee for coping with future climate change.
