Awareness of climate risks and opportunities: empirical evidence on determinants and value from the U.S. and European insurance industry

Nadine Gatzert,Philipp Reichel

doi:10.1057/s41288-021-00227-5

Abstract

In this paper, we study the awareness of European and U.S. insurance companies of climate-related risks and opportunities using a respective indicator from the Refinitiv Eikon database that uses reporting data. Based on this, we examine the determinants and value of the awareness of business risks and opportunities resulting from climate change, which, to the best of our knowledge, has not been done so far, despite its increasing and specific relevance for the insurance industry. We use a logistic regression analysis as well as a linear fixed effects model for a 10-year period from 2009 to 2018. Our results show that larger European insurers are significantly more likely to exhibit such awareness. When controlling for subsectors, property & casualty insurers tend to be aware of the risks and opportunities resulting from climate change. Moreover, when using the linear fixed effects model, we find a statistically significant positive value effect on Tobin’s Q.

Highlights

Climate risks are becoming increasingly important for insurance companies
While the results show a significant relationship between size and the corporate carbon strategies based on an analysis of variance (ANOVA), this cannot be concluded for corporate performance
Statistical significance is reported at the 1%, 5% and 10% levels and is denoted by ***, ** and *, respectively in Table 3.12 In line with our hypotheses, the results show that larger insurers from Europe—all else being equal—are significantly more likely to be aware of climate risks and opportunities, as reflected in the indicator ClimateRO.13

Summary

Introduction

Climate risks are becoming increasingly important for insurance companies. Munich Re estimates an economic impact of USD 160 billion due to natural disasters for 2018, with only 50% being insured, and the Allianz Risk Barometer 2019 ranks natural disasters (3) and climate change (8) among the top 10 global business risks.. Though there is an extensive literature on the insurance industry and climate change that focuses on risks and/or opportunities Stechemesser et al 2015), only a few studies present empirical findings in this context. The aim of this paper is to contribute to previous work by empirically identifying drivers behind the awareness of European and U.S insurance companies of the business risks and opportunities resulting from climate change using a respective indicator from the Refinitiv Eikon database. We further extend previous research by studying the value effects of this awareness for a broad panel dataset

Objectives

Findings

Conclusion