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Climate adaptation step one: insurers to shed silos & linearity!

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By Praveen Gupta

· 8 min read

Any discipline that is seriously siloed, linear and retrospective rather than prospective has a problem grappling with ever-evolving perma and polycrisis. Perhaps none would rival insurance. To expect it to comprehend and navigate geopolitics in flux and align with threats to biodiversity and the ecosystem - is a tall order. Needless to mention the dampening influence it exerts on the contiguous risk management space.


Six or so years ago, I was making a courtesy call to the CFO of a global hotel chain just as one of their properties next to the Mumbai international airport was going through finishing touches. We have done it all, he boasted about the sprinklers, hydrants, segregation, fire-proofing et al. And even mentioned having paid the inspection agency a hefty fee!

Can you think of anything else? He asked me.

What will be the dependency of this hotel on the airport?


Well, I said, if the airport were to shut down for some reason - how would it impact the expected cash flow?

Can that happen? Is there coverage for it?

I recall telling him that being part of a multinational network, the new property might have access to such a facility. Hence worth exploring. The body language said - nothing is going to happen to us!

The rest is history. 


Wimbledon, however, learned the value of retaining an infectious diseases extension from the SARS breakout. One of the rare international sporting events well protected during the pandemic. It was guided by a well-honed risk mitigation measure. 

I witnessed how instinct works, in July 2019. At an event in Chengdu, Szechwan, I met up with a professor from the University of Illinois, Urbana-Champaign. I heard him say at least 3 times during a sightseeing trip - what if these guys do not turn up? I couldn’t resist asking what that was supposed to mean. 

The University of Illinois, like other US universities, drew a large number of students from mainland China. As a practitioner of financial risk engineering, he was concerned about protecting their balance sheet from any unforeseen event. In this case - Chinese students not turning up. On his return, he put together a risk solution which came in handy. What kept them away during 2020-21 may look quite obvious in hindsight.

Biodiversity & ecosystem services

“More than half of the world's economic output depends highly or moderately on nature and its benefits, such as fertile soils, food supply, clean water, climate control, erosion prevention and flood control. For insurance companies, the impacts of biodiversity loss could translate into growing underwriting risks, notably for insurance lines such as flood, crop, liability, life and health”,

explain Cody Dong & Arne Philipp Klug of Digital Insurance on how the biodiversity crisis could impact insurers.

“There is a direct link between biodiversity loss and higher underwriting risks, point out Cody and Arne. The relationship is especially evident for insurance services covering floods, crops, life, health and environmental liabilities, and mispricing these risks could impact a carrier's profitability”. 

Alejandro Litovsky highlights a refreshing development, howsoever modest a beginning. “Insurance companies in the Philippines are open to thinking about pricing the 'protection value' of coastal ecosystems like mangroves into their insurance policies. This is one of the first emerging markets where a business shift in the industry towards natural capital is now possible”.

In his piece, The Coming Business Insurance Apocalypse, Joel Makower of reminds us how “homeowners’ insurance is the latest climate casualty. Could business coverage be next?”, he asks. Californian homeowners, for instance, are still trying to reconcile with the announcements by State Farm and All State on quitting the segment. 

Emerging order

Ms. Mottley, the Barbados Premier, describes the financial systems created three-quarters of a century ago as “imperial,” set up as they were before many countries in the world had become independent. She has called for a major overhaul so that developing countries most prone to climate change disaster - and already facing debt crises - could access capital to address poverty and damage, and to pay for their transition to a green economy. 

Talking of transition, Alessandro Blasi says,

“While all countries have a legitimate ambition to gain a first-row seat in the new global energy economy that is emerging, as things are now - there are two elements that are set to remain central: the first is that while there might be a certain degree of diversification away from China, the Asian giant very unlikely will be pushed on sidelines of the sector; and the second is that international collaboration and cooperation will still be a key effective and efficient way to move forward and ensure that critical minerals would not be a major hurdle to clean energy transition”.


Richard Heinberg, Asher Miller and the Post Carbon Institute put together a systemic analysis in ‘The Great Unraveling: Navigating the Polycrisis of Environmental and Social Breakdown’.

"Because we have adapted our collective behavior and assumptions to economic opportunities opened by vast amounts of energy unleashed via fossil fuels, we have adopted unrealistic expectations for the levels of human population and consumption to be sustained over the long term. The dashing of those expectations against hard natural limits is one way of characterizing the Great Unraveling.

While a complete and sudden end of humanity is theoretically possible, our more likely near-term future will consist of decades of social, economic, political, and ecological turmoil punctuated by periods of rescue and recovery. By the end of the century, both the overall human population and the overall economy will be smaller, perhaps significantly smaller, and humanity will inhabit a world of damaged but rapidly adapting ecosystems and largely depleted resources.

That’s not a future that many of us would willingly choose, but it is one that we have collectively determined through decades of fossil-fueled overpopulation and overconsumption. The point to remember is that it is a future in which we will still have agency. We can optimize the Great Unraveling with cooperation and foresight, or we can ensure a worse outcome through denial and conflict.

Behaviors, attitudes, and strategies that seemed to make sense before the Unraveling (such as efforts to grow national and local economies) need to be replaced by different attitudes, behaviors, and strategies. Building resilience at the community scale will be especially important: as global supply chains grow brittle and shatter, humanity will depend more upon local economies for survival and opportunities to thrive. Cooperative strategies to ration scarce resources and reduce inequality will also be required in order to defuse conflict and ensure optimal outcomes for as many as possible.

If humanity descends into blame and desperate efforts to maintain a status quo that by its very nature cannot persist, the future looks dark indeed. Perhaps, if we work together to build a truly sustainable way of life, future generations will have some reasons to thank us."

Perils of linear and siloed thinking

“Linear thinkers view a problem as a process with a starting point and a sequence of connected steps, ultimately leading to a solution. Simple, isolated problems can often be effectively managed using this kind of thinking. However, when problems are not isolated but interact across technological, social, and environmental systems, linear thinking can then obscure the real situation and lead to outcomes that are unsatisfactory or even catastrophic.

Siloed thinkers tend to stay within a strictly defined range of expertise (such as poverty elimination, environmental pollution abatement, or energy management) and have difficulty seeing how developments within their field are tied to those studied by different sets of specialists.

The Arab Spring in 2011 serves as an illustration of both of these dynamics at play: chronic conditions of corruption and economic stagnation in the Middle East/North Africa (MENA) region combined with a spike in global grain prices as a result of climate change-influenced droughts created explosive political upheaval throughout the region”.

In conclusion

Simon Tisdall of the Guardian: “What manner of new global order will ultimately emerge? It’s plain the old great-power games are unsustainable when the planet’s on fire, the ice is melting - and existing rules are ignored. To survive, let alone prosper, in the 21st century, the world needs to replace nationalistic, zero-sum rivalries and power blocs with a more equitable, genuinely multipolar dispensation”.

“While most insurers within the MSCI ACWI Index acknowledge climate-change risks to their business, biodiversity loss is emerging as a parallel challenge. Deforestation, land-use change, overfishing, pollution, climate change, and the introduction of invasive species have resulted in increasing biodiversity losses”, point out Cody and Arne. Notwithstanding IFRS and ISSB have failed on the double materiality front. Insurers would need to ensure a balancing act on both fronts.

If political leaders need the courage to adapt to the new order - insurers need to shed the silos and linearity that blinkers them. The pushback from nature is creating a new playfield. Insurers need to reinvent themselves as healers. Aiding and abetting the climate crisis is the surest path to extinction. A path neither meant for the faint-hearted nor the naïve.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Praveen Gupta was the second most-read author in the environment and sustainability space for illuminem in 2022, and the third most read in climate change during 2023. A former insurance CEO and a Chartered Insurer, he researches, writes, and speaks on diverse subjects. His blog captures much of the work.

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