Climate Change Trade-Offs: What does it take to keep our world insurable?

  • The world has long passed the point where a gradual and essentially smooth economic transition was possible to achieve the Paris goals and keep the rise in global temperature below 1.5C. Consequently, trade-offs between affordability and insurability – and between our current and sustainable lifestyles – are becoming more challenging.
  • The transition is still possible: But the necessary compromises won’t be pain- or costless. And the life of every individual and business will be impacted.
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  • For individuals, how we consume, live and save must change. While responsibility for making the necessary changes falls on every individual, supporting policies and measures are indispensable.
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  • Consumption: High carbon prices are needed to ensure the green premium paid for climate-friendly products disappear
  • Lifestyle: Influence behaviors by nudges and prices as well as by adequate infrastructure, from public transport to comprehensive climate impact information
  • Living places: Ensure risk-adequate prices to incentivize risk prevention and adaptation
  • Savings: Incentivize long-term savings by tax breaks and subsidies

For companies, a similar logic applies: Financing, investments and the way inputs – labor, suppliers, and materials – are used must change. This, too, requires public support and incentives:

  • Borrowing: Reduce the uncertainty of investments through instruments like contracts of difference
  • Green investments: Make green investments profitable and scalable by subsidies
  • Employees: Facilitate climate-related burdens by new forms of unemployment schemes
  • Supply chains: Enable the change to sustainable and secure supply chains through holistic risk management solutions
  • Materials: Overcome the cost argument by introducing quotas to establish a true circular economy

Solving these trade-offs and finding a new and better equilibrium require two decisive ingredients: first, insurers that disclose the real risks and incentivize sustainable behaviors and practices and second, public money that can accommodate the transition.

Ultimately, mastering the climate crisis is not a question of politics and money but of individual responsibility. An uninsurable world would be not only a world that failed to cope with climate change but also a metaphor for a collective ethical where each individuals dodges their moral obligation to reduce carbon emissions.

Jasmin Gröschl
Allianz Investment Management SE

Arne Holzhausen
Allianz Investment Management SE

Markus Zimmer
Allianz Investment Management SE