Insurance, SMEs and the Changing Climate

Sibylle Fischer
August 30, 2021
SMEs are crucial to the health of our global economy, but they are especially vulnerable to the impacts of our changing climate – and many remain dangerously underinsured.

From deadly flash floods to extreme heat and drought, natural disasters caused by our rapidly changing climate are becoming a distressing, yet familiar part of life on a warming planet. When it comes to climate change resiliency, extreme weather poses a special threat to small and medium enterprises (SMEs), many of which lack the coverage necessary to absorb the financial implications of a catastrophic weather event. Additionally, a disproportionate number of SMEs are located in areas with more natural vulnerability to dangerous and costly climate events. Both as risk managers and investors, some insurers and startups are working to evolve their approach, products and guidance when it comes to insuring small businesses for an uncertain climate future.

SMEs: At Risk and Underinsured

Whether it's their role in building community, bolstering local employment, or providing a breeding ground for innovation – viable, functional SMEs are crucial to the health (and growth) of any economy. But recent reports reveal that climate change is hitting SMEs particularly hard and is likely to continue to impact them at high levels. And while some SMEs reject coverage entirely, more often SMEs are underinsuring their properties  meaning they haven’t adequately estimated the true cost of rebuilding their business in the wake of disaster. When it comes to insurance for events like floods, business interruptions, supply chain issues, and material damages small businesses are often woefully underinsured.

ESG & Sustainability in Insurance

In addition to a still raging pandemic, the summer of 2021 gave us punishing heat waves in Western Canada and the U.S. and overflowing riverbanks in Western Germany. Virtually all experts agree we are at an absolute inflection point when it comes to our climate, necessitating bold countermeasures and programming from individuals, government, and the private sector alike. For insurers, creating sustainable business strategies has been a work in progress for many years. In order to operate within a strong regulatory framework of risk management and stable growth, many have been implementing environmental social governance (ESG), or sustainable business practices within their organizations – with sizable investments made in products, projects and processes that reduce our global dependence on carbon and other greenhouse gas producers. 

Climate Monitoring & Reporting for Businesses

With a clearly demonstrated need to help make positive environmental changes, there are a host of startups looking to help businesses measure and reduce their carbon footprints. Planetly, as one example, allows business owners to understand, track, reduce and offset their carbon emissions. Emitwise is a carbon accounting platform that extends to your entire supply chain. Everimpact is yet another climate monitoring platform using sensors from satellites, ground data and IoT devices to help cities and businesses measure and reduce their greenhouse gas emissions.

Mobilizing at the Industry Level

The insurance industry is well-positioned to use its market influence, sophisticated analytics, vast data sets and innovative technologies (and technology partners) as part of an ongoing and evolving approach to loss mitigation and disaster financing. Governments and insurers must be working together and using their mutual influence to strengthen emissions standards, promote sustainable practices, and develop novel insurance products to help insure against the rapidly changing climate  especially for SMEs.