Insurance risk analysts are downplaying climate dangers by tweaking catastrophe models to lower policy prices and compete more aggressively, according to a Financial Times investigation. Whistleblowers report pressure to "fudge the numbers," with one senior reinsurance professional stating she faced such pressure. A catastrophe risk modeller at an insurer warned policies are "being underpriced" as models are altered.
This practice has drawn incredulity, as insurers gain market share while exposing themselves to bigger future losses. The article highlights the difficulty of calculating climate risks stretching decades into the future. Insurers pay out over $100 billion annually from natural disasters, though they remain profitable overall.
Executives warn of growing disaster exposure due to climate change. However, near-term commercial pressure to take on more risk, driven by heavy investment in the sector, incentivizes price cuts. Fathom's Oliver Wing notes clients often abandon models giving pessimistic results for those showing optimistic assessments.
The industry is dominated by Verisk and Moody's RMS, creating operational lock-in that discourages switching. Potential clients compare models, often favoring those with lower risk outputs. The report underscores a tension between accurate risk assessment and commercial pressures to write more business in a lucrative but uncertain market.
Source: Financial Times Companies · Summarized by HeadlinesBriefing