OpinionHow startups can drive insurance innovation to mitigate climate crises
Opinion
How startups can drive insurance innovation to mitigate climate crises
Just before the UN Climate Change Conference in Baku in last November, Hurricane Milton and unprecedented storms in Spain—some of the most severe in decades— highlighted the urgent need for insurers to adopt advanced climate technologies to improve efficiency.
Global insurance companies, which insure against the damage from natural disasters, are at a critical juncture as 2025 approaches. A recent World Economic Forum survey identified extreme weather as the top global crisis, affecting sectors like real estate, health, and logistics. Recent reports from Munich Re, the German reinsurance giant, reveal that global insured losses for 2023 reached $95 billion, exceeding the 10-year average due to the rising frequency and severity of destructive storms.
According to Swiss insurance giant Swiss Re, these storms accounted for $64 billion in damages globally in 2023, with the US and parts of Europe seeing the fastest growth in damages created by the storms. It is enough to mention Hurricane Milton, which in last October caused damage that had not been seen in more than 100 years along the US East Coast and the devastating floods in Spain in the same month, which was one of the biggest ever natural disasters in Spain. The projections for 2024 are even more alarming, with potential losses from extreme weather events estimated to reach $151 billion.
The annual UN Climate Change Conference, which took place last month in Baku, Azerbaijan discussed many different, substantial angles of climate change.
These worrying statistics are forcing insurance companies around the world to rethink, mainly in terms of adoption of innovative technologies. The challenges of accurately assessing, pricing, and mitigating climate-related risks are immense, yet it also presents unique opportunities for collaboration with climate tech innovators.
Extreme weather variability complicates risk modelling and underwriting processes. Traditional models, based on historical data, struggle to keep pace with the unpredictable nature of modern climate patterns.
This trend has resulted in increased claims, reduced profitability, and a withdrawal from high-risk markets, with some insurers already limiting operations in certain regions.
As climate risks grow, the industry’s reliance on innovative solutions, such as artificial intelligence (AI), machine learning (ML), and satellite imaging, is becoming essential for more precise risk assessments and faster claim settlements. Use of innovative technology is an urgent need for global insurance companies in order to become more efficient.
There are many examples of use of these technologies and others by insurance companies. The first example is risk modelling. In order to stay ahead of climate impacts, insurers are turning to high-resolution models that simulate future climate scenarios, such as a 2°C or 4°C rise in global temperatures. These models help predict how hazards like floods, wildfires, and hurricanes may change in frequency and intensity, allowing insurers to anticipate future risk landscapes more accurately.
The second example is satellite technology. Satellite imaging advancements are revolutionizing risk assessment and claim processing. With real-time, all-weather imaging that penetrates clouds, insurers can monitor floods, hurricanes, and other extreme events as they unfold, streamlining the claims process and enhancing risk assessment accuracy.
The third example is weather intelligence platforms - platforms that transform raw weather data into actionable insights, enabling clients to manage weather-related risks proactively. Industries including logistics, aviation, and retail can use these platforms to minimize operational disruptions, enhance safety, and improve overall outcomes, contributing to more resilient business continuity strategies.
In conclusion, the growing impacts of climate change present both an existential challenge and a historic opportunity for the $6 trillion insurance sector. Technologies like AI and climate modeling provide the tools needed to adapt and thrive, but the key lies in fostering collaboration with climate tech startups. Together, they can craft innovative solutions that not only safeguard the industry’s future but also contribute to a more sustainable, resilient global economy.
Ilana Liberman is the Business Development Manager at Sompo Digital Lab Tel Aviv.
