Jay Guin: (Re)insurers running from nat cat and into cross-class clash?

(Re)insurers diversifying into other lines of business to avoid the unpredictability of the current property market may risk exposing themselves to cross-class clashes, Verisk’s Jay Guin has warned.

Speaking to The Insurer TV, Guin – who serves as EVP and chief research officer for Verisk Extreme Event Solutions – used wildfire as an example of where natural catastrophe exposure is seeping into general liability treaties and exposing insurers to cross-class clash.

“For example, liability and property can clash. We have seen examples of that in wildfires, where certain businesses were held accountable and liable for causing the fires,” Guin explained.

Along with the potential for issues around cross-class clash, Guin highlighted wildfire as the prime example of a peril that is becoming increasingly problematic to insure due to climate change.

“The long drought cycles that are going on in the western United States, the lack of upkeep of the forestry system, those are all colliding in a very bad way. The heat, the temperature, the lack of humidity in the atmosphere and a lot of fields to burn through. That's why we get these mega [wildfire] seasons.”

Guin also saw hurricanes as another problematic element of the nat cat market, with the effects of climate on the peril being even less understood.

“Storms are getting more intense, they're getting more wet, meaning they're causing bigger floods. We see something called rapid intensification … So there's a lot of research going on as to how to tie the impact of hurricanes with climate signals, ocean temperatures, the ENSO cycle, so on and so forth.”

He also said building habits and macroeconomic factors had pushed up the value of the property in the path of these perils.

“So first of all, I think one thing that has to be told is a lot of the increase in risk is because of exposure growth, meaning year over year, by our accounts, there is at least a 5-6 percent increase in total property valuation, partly because of inflation, partly because of new construction happening in high hazard areas.”

Cross-clash clashes were not the only issue that Guin saw emerging from climate risk spilling into general liability treaties. He also noted the potential for the industry to be exposed to systemic risks.

“So for example, we talked about climate change, slowly but surely, many companies are exposed to liability risk because of climate change … So that's very systemic because climate change is not a localised thing.”

He noted that lawsuits against fossil fuel generators and emitters have already begun to emerge over their part in climate change.