Natural disasters are becoming more common, so that insurers, those firms that sell insurance to insurance companies, are scaling back their exposure to such risks.
While this may make business sense, it raises the question of whether individuals and businesses will be able to protect themselves against the effects of climate change if their insurance companies cannot even get coverage themselves.
Just weeks after wildfires caused significant damage in Hawaii and parts of Europe, and as catastrophic floods ravaged Libya, the issue was front and center at a major industry gathering held in Monaco this week.
Reinsurers identified climate change as the biggest risk they now face in a survey by PricewaterhouseCoopers and the Centre for the Study of Financial Innovation.
Ratings agency Fitch said in a note to investors ahead of the conference, that some companies 'were already retreating from the property-casualty market in 2022'.
Even the strongest reinsurers have now pulled back, largely through tightening their terms and conditions to limit their aggregate covers and low levels of natural disaster protection.
In addition, S&P said more than half of the top 20 global reinsurers maintained or reduced their natural disaster exposures during the January 2023 renewals, despite the improved price terms and conditions and rising demand.
In the first half of this year, AXA's reinsurance unit raised prices 6.3 percent, but it took in three percent less, mostly because of a decrease in exposure to natural disasters.
Fitch notes that reinsurers are decreasing their exposure to so-called secondary peril events. Climate change is causing smaller weather events, which are becoming more frequent and virulent.
The industry is still providing ample cover against the most severe weather events, Fitch said.
The National Oceanic and Atmospheric Administration released data from the National Oceanic and Atmospheric Administration that weather and climate disasters in the United States averaged 18 per year in 2018 and 2022, up from 8.1 events between 1980 and 2022, using inflation-adjusted figures.
In the first 8 months of this year, the US was hit by a record-breaking 23 such events.
The rise of natural disasters has created a tug-of-war between insurance companies and reinsurers.
Providing coverage against risks with'really high frequency' doesn't make any sense, said Thomas Blunck, head of the reinsurance committee at Munich Re.
These natural disaster policies were initially developed to protect insurers from extreme events and not against the volatility inherent in the business, Conoscente said, explaining the development in the industry.
This repositioning of reinsurers is not without consequences for traditional insurers, he said.
Jean-Philippe Dogneton, the head of Macif, criticised the 'rapid' and 'brutal' shift in the reinsurance industry.
Fitch's Robert Mazzuoli said some intermediaries 'were abrupt with their clients and treated them poorly'.
Under current circumstances, insurers may have little choice than increase their rates or reduce the risks that they cover, which is already happening in certain countries.
Scor's Conoscente said for the moment that you can get insurance anywhere but on the condition of being able to pay the necessary price.
A large portion of the population isn't ready to pay the reality of climate change, he said.