Climate change is no longer a distant threat but a present-day reality reshaping industries and economies globally. The insurance sector stands at the forefront of managing the fallout from these changes as extreme weather events and environmental hazards escalate in frequency and severity. For actuarial analysts, integrating Environmental, Social, and Governance (ESG) principles into their work has become a critical necessity to ensure the industry’s resilience and sustainability.

Environmental Challenges in the GCC Region

The Gulf Cooperation Council (GCC) countries, including Saudi Arabia, Qatar, the UAE, Kuwait, Bahrain, and Oman, face significant environmental challenges, particularly concerning air pollution. Data on PM2.5 pollution highlights the gravity of the situation:

• Qatar: PM2.5 annual mean exposure is 107 µg/m³, with 100% of the population exposed to levels exceeding WHO guidelines. Qatar also has the highest CO2 emissions per capita globally, contributing 0.25% of global emissions despite housing just 0.031% of the world’s population.

• Saudi Arabia: PM2.5 annual mean exposure is 106 µg/m³, with Riyadh and Jubail ranking among the most polluted cities worldwide.

• UAE and Kuwait: Mean exposures are 64 µg/m³ and 67 µg/m³, respectively, posing significant health risks.

• Bahrain and Oman: While slightly lower, these countries still experience mean pollution levels exceeding 50 µg/m³, well above WHO recommendations.

Comparative analysis shows stark disparities, with countries like the USA, Canada, and Norway exhibiting significantly lower PM2.5 exposure levels. These findings underscore the urgent need for policy reforms and sustainable practices in the GCC.

Implications for Health and Economic Vulnerabilities

Environmental challenges, combined with economic reliance on oil and rapid urbanization, exacerbate health risks and amplify financial and social vulnerabilities. Poor air quality increases the prevalence of respiratory and cardiovascular diseases, driving up health insurance claims. Meanwhile, climate-related events such as flooding, heatwaves, and sandstorms result in infrastructure damage, posing challenges for property risk assessments and claims management.

 

Climate Change’s Impact on the Insurance Industry

The insurance sector is directly affected by the consequences of climate change:

• Rising Claims and Financial Losses: Climate-related events lead to increased claims, straining insurers’ reserves and profitability.

• Health Insurance Costs: Poor air quality and related health issues lead to higher claims for respiratory and cardiovascular conditions.

• Property Risks: Infrastructure damage from extreme weather necessitates new risk assessment models and increases costs.

Actuaries’ Role in Mitigating Climate Risks

Actuaries play a pivotal role in addressing these challenges, leveraging their expertise to:

• Quantify Climate Risks: Advanced modelling techniques incorporate historical data and environmental factors to predict and price risks accurately.

• Develop Sustainable Products: Insurers can innovate with green insurance products, incentivizing renewable energy adoption and promoting sustainability.

• Align with ESG Expectations: Compliance with sustainability standards attracts investors and ensures adherence to regulatory frameworks.

• Mitigate Systemic Risks: ESG integration helps identify and address long-term risks such as climate migration and public health crises.

Proactive Strategies for a Sustainable Future

A sustainable future requires a concerted effort to transition to clean energy, enhance infrastructure resilience, and mitigate health impacts. Actuarial analysts, by integrating ESG principles into their analyses, can play a transformative role in:

• Strengthening risk management frameworks.

• Driving the adoption of sustainable practices within the insurance sector.

• Contributing to global sustainability goals while ensuring the industry’s long-term viability.

The insurance sector, guided by forward-thinking strategies and ESG-aligned principles, can become a cornerstone in safeguarding both the environment and human well-being, turning the challenges of climate change into opportunities for growth and innovation.