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World - ‘Rough ride’: 5 CFO tips for cutting insurance costs amid climate change

CFOs facing more destructive weather and soaring insurance costs can take five steps to hold down premiums.

ornadoes, floods, hurricanes and other calamities whipped up by climate change are upending a cornerstone for CFO risk management.

The cost of commercial property insurance in the U.S. has surged, increasing 15% last year in the biggest jump in more than three decades, the Insurance Information Institute said. During the first six months of 2023, the cost from commercial property claims ballooned 30%, according to the Swiss Re Institute.

Severe weather has created “certainly the most challenging property market we’ve seen probably since 9/11,” according to Brandon Thompson, senior vice president for risk management at Transwestern, a Houston-based commercial real estate company. “We’re in for a rough ride for the next couple of years.”

CFOs face a seller’s market for commercial property insurance as carriers push up premiums and pull back from high-risk areas, Thompson said in an interview. “You can’t just walk down the street any more and pick up an insurer.”

The turbulence from global warming puts pressure on CFOs and chief risk officers to precisely gauge company vulnerabilities and minimize insurance costs, according to experts in risk management. Solutions range from closer partnerships with insurers and hardening buildings against damage to use of new insurance structures and advanced data analytics.

“If you hold on to your old ways, you’re not going to be able to move forward,” said Zaheer Hooda, head of North America for Cytora, a London-based InsurTech firm.

The frequency of calamities induced by climate change shows no sign of falling.

Through early November this year, the U.S. suffered 25 weather-related disasters, each causing at least $1 billion in damage, according to the National Oceanic and Atmospheric Administration. From 1980 until 2022, the country annually faced just eight such catastrophes on average, adjusted for inflation.

Disasters causing more than $1B in damage increase

Number of disasters causing more than a $1 billion in damage, CPI adjusted, from 1980 until Nov. 8, 2023.

A $1-billion-dollar catastrophe currently strikes the U.S. on averageevery three weeks compared with every four months during the 1980s, NOAA said this month in the U.S. National Climate Assessment, citing inflation-adjusted data.

The footprint from destruction is growing. So called convective storms of heavy rain, lightning, hail and violent wind spread further north this year into Great Lakes states, expanding the range of vulnerability for insurers and businesses alike.

During the first half of 2023, convective storms caused $34 billion in insured damage in the U.S. — a record for a six-month period and 68% of insured natural catastrophe losses worldwide, according to Swiss Re.

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