Paul Munton recently retired as Rothbury Insurance Brokers’ executive general manager of broking branches. After 45 years in the industry he said climate change is now the biggest issue facing the industry in New Zealand. Munton said the way this is driving up insurance costs and increasing business risks has created an existential threat for brokers. “I think our biggest challenge actually is remaining relevant and affordable - that's the ongoing challenge that's going to be there,” he said.
Beyond cyber, AI and geopolitics: Why climate change tops the list
While cyber threats, artificial intelligence and geopolitical instability are all reshaping the insurance landscape, Munton singled out climate change as the headline issue. He said the impact is visible in claims data.
“We're certainly seeing it in terms of claims coming through the insurance industry, with for example, heat waves and floods,” he said.
Industry data shows that the country's weather-related insured losses have doubled in recent years. Recent events underscore this challenge:
Where cities can get “wiped out”
In New Zealand, the stakes are especially high: climate change challenges threaten the viability of the whole economy.
“We have earthquakes like we had with Canterbury – major events where a city's wiped out,” he said. “Do you still want to invest in that area, knowing that we get more frequent events which are going to cause claims and then deterioration in shareholder returns?”
Insurance affordability as a critical broker issue
Brokers are at the heart of any solution that aims to maintain insurance affordability in the face of this regular succession of losses. He put it this way:
“How the industry navigates its way through that complexity and has an insurance offering that you want to write and that you're prepared to invest in and lose capital on but balanced against the affordability issue,” said Munton.
The affordability issue, he said, is threating the entire relevance of the insurance industry.
“You've [as a business] got to have insurance backing, otherwise no one's going to lend money if it's unsecured – so there's that need to have cover in place,” he said.
Munton said, despite the challenge, lessons are being learned. In recent years, new and more restrictive underwriting parameters have been the industry response to big events like the Canterbury earthquakes. These have changed what brokers can offer.
September 11 and Y2K and a risk rethink
However, he dated the more fundamental risk management adaptations driving today’s insurer offerings to brokers back to the September 11, 2001, attacks on the United States. This attack and the insurance losses that resulted had “a massive impact” on how the industry regarded risk.
“We’re in a global village and the reinsurance capacity comes from offshore so when you have those sorts of events, people start reassessing risk and asking how do we cover this?” Munton said.
The results, he suggested, can be see in today’s insurance offerings.
“You used to be able to buy unlimited covers for liability – no one will offer unlimited covers these days,” said Munton.
Before September 11, there was 1999’s Y2K scare. At the time, he was working in reinsurance markets for the giant reinsurer, Swiss Re. This fear of a global computer meltdown as the clocks changed from 1999 to 2000 was almost like a test run, he suggested, that primed insurers and reinsurers for the catastrophes to come.
“Reinsurers were running around the market putting on exclusions and concerned about what was going to happen,” said Munton. That included concerns that planes could fall out of the sky and pipelines might stop operating.
“Nothing happened, the world carried on, but there was a lot of concern in insurance markets about the impact of that and exclusions were introduced into contracts,” he said, describing it as “a bit of a white-knuckle ride” for insurers.
COVID-19’s unexpected curve balls
The COVID-19 pandemic brought another angle – and broker challenge - to the issue of paying insurance premiums, he said: how or what should a business pay when it is forced to do nothing?
“For example, with a trucking fleet, making sure they had the right cover so that they could lay up their vehicles,” said Munton.
Balancing profit and affordability
Brokers play a critical role in the industry’s search for a balance between underwriting profitability and insurance affordability.
“I think being a broker is about actually understanding what the client’s needs are and then balancing those needs and the advice about what's happening in the market and trying to align the two to an affordable solution,” he said.
Munton is optimistic that the industry and brokers can find solutions to this risk management and insurance puzzle that is often driven by climate change fuelled insurance costs.
“How can we tailor something to fit with the ever changing environment - that's one of the things that I love about our business,” he said.
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