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Modelling it all: Secondary Perils in a warming world

Rising secondary perils losses are the canaries in the coal mine when it comes to the disruptive economic impacts caused by climate change. The insurance industry has significant exposure to these risks and unique tools and data to address the changing climate risk landscape. Deloitte and the University of Cambridge Institute for Sustainability Leadership (CISL) have published a joint whitepaper “Modelling it all: Secondary Perils in a warming world” which addresses these challenges, and more.

Modelling it all: Secondary Perils in a warming world
Climate product innovation within the insurance sector
The insurance industry sits at the forefront of climate risk and the race to both mitigate and build resilience against our changing climate. The topic of secondary perils is widely talked about but not yet well enough understood. This paper provides a timely call to action for all participants in the insurance value chain, and we look forward to the action it will prompt.

Neal Baumannb

Global Insurance Lead at Deloitte

This report seeks to understand how the insurance industry can refine the way it defines, measures, and underwrites secondary perils amidst an evolving climate risk landscape. The report outlines key issues the insurance sector faces regarding secondary perils and the surrounding discourse and identifies the main challenges that inhibit the industry from taking requisite action. The report concludes with high-level, practical recommendations to empower the full insurance value chain, with the goal of increasing financial, social and climate resilience and raising awareness of the urgent need for change.

The report concludes with six priorities for industry participants:

Standardise the definition and use of the term ‘secondary perils’

Bold secondary peril leadership - focused on education and communication

Rethink value-chain engagement and collaboration on secondary perils

Diversify modelling approaches and challenge assumptions around secondary perils

Accelerate the deployment of capital to address and innovate around secondary perils

Encourage dynamic underwriting practices to enhance secondary peril exposure management capabilities, and incentivise resilience measures among policyholders

As the climate changes, the frequency and severity of risks the insurance industry manages will change. Particularly for secondary perils, this means we must be on the front foot in advancing industry modelling skills and client understanding of exposure to physical risks.

Dr Bronwyn Claire

ClimateWise Lead at CISL

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