"Life Insurers Must Set Shorter Renewal Cycles to Address Climate Crisis"

Korea Insurance Research Institute Holds International Seminar on "Climate Risk Management in the Insurance Industry"
Climate Change Variables Must Be Included When Calculating Insurance Premium Rates
"Climate Change Is an Opportunity for Non-Life Insurers... Accurate Predictive Models Needed"

Life insurance companies should shorten their premium renewal cycles to reduce losses caused by climate change, according to a recent claim. Non-life insurance companies also emphasized the need to develop appropriate loss assessment models to turn climate change from a crisis into an opportunity.

On the 16th, the Korea Insurance Research Institute held an international seminar at the Korea Economic Association Conference Center in Yeouido, Seoul, under the theme "The Impact of Climate Change Becoming a Reality: Development Plans for Climate Risk Management Systems in the Insurance Industry." On the same day, the institute signed a six-party memorandum of understanding for international joint research on climate risk management with Korean Re, Korea University, Pohang University of Science and Technology, Ewha Womans University, and China's Tsinghua University.

Ahn Cheol-kyung, President of the Korea Insurance Research Institute, is speaking at an international seminar held on the 16th at the Korea Economic Association Conference Center in Yeouido, Seoul, on the theme "The Impact of Climate Change Approaching Reality and the Development Plan for the Climate Risk Management System in the Insurance Industry."

Kim Kyung-sun, a research fellow at the Korea Insurance Research Institute, who spoke as a presenter, gave a presentation titled "The Impact of Heatwaves on the Life Insurance Industry." According to the Korea Meteorological Administration, the number of heatwave days?days with a daily maximum temperature of 33 degrees Celsius or higher?in South Korea increased from 7.9 days in the 1980s to 14.5 days in the 2010s. Globally, the frequency of heatwaves is also rising. The U.S. National Oceanic and Atmospheric Administration (NOAA) measured the Earth's average surface temperature at 17.01 degrees Celsius in July last year. This is the highest temperature ever recorded and 1.21 degrees higher than the 20th-century average temperature (15.8 degrees Celsius).

Research fellow Kim stated that the frequency of various health risks such as heart, respiratory, and malnutrition issues is also increasing due to climate change, including heatwaves. Related insurance losses have been steadily rising as well. Natural disaster insurance payouts by domestic insurers increased nearly threefold from 394.7 billion KRW in 2017 to 1.2559 trillion KRW in 2022 over five years. Kim said, "Climate change is expected to affect insurers through changes in whole life insurance payouts and health insurance claims," but added, "However, accurately measuring the extent of losses in the life insurance industry due to climate change is very difficult."

Kim emphasized that life insurers should shorten their renewal cycles to respond more sensitively to climate change. He explained, "Life insurance provides long-term coverage with premiums fixed for a considerable period, making it difficult to respond to fluctuations in loss ratios," and added, "By setting shorter renewal cycles, insurers can more frequently assess and reflect the volatility of health risks caused by climate change."

He diagnosed that the impact of climate change should be considered when designing insurance products and calculating premium rates in the future. Kim suggested, "When calculating life insurance risk rates, it is necessary to consider the offset effects of climate risk mitigation and adaptation measures," and recommended, "Insurance premium support policies should also be implemented for vulnerable groups with high exposure to climate risks and heavy premium burdens."

Baek Cheon-woo, head of the CAT (Catastrophe) Modeling Department at Korean Re, presented on "The Impact of Climate Risks on the Non-Life Insurance Industry and Current Responses." Baek stressed the need for non-life insurers to develop predictive models that can accurately assess the physical loss levels caused by climate change. Currently, four models are commonly used globally to evaluate physical risks from climate change: expert judgment, hazard maps, footprints, and the Climate Action Tracker (CAT). Expert judgment predicts risk levels through climate change experts. Hazard maps indicate typhoon intensity or flood levels on climate change maps to predict outcomes accordingly. Footprints predict future climate change based on actual damage amounts incurred. CAT is a model that calculates the average expected damage scale by frequency of risk. Baek said, "The Bank of England (BOE), the UK's central bank, recommends footprints and CAT as reasonable climate change loss assessment models," but added, "However, both models have limitations that may lead to overestimation of losses, so much research is needed going forward."

If a proper climate change loss assessment model is developed, climate change is expected to become an opportunity rather than a crisis for non-life insurers. Baek stated, "Since the insurance industry's very nature is to provide services against risks, climate change represents another opportunity," and added, "Many experts should gather to study climate change and establish reasonable response measures in the future."

This content was produced with the assistance of AI translation services.