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.
  • 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.
  • 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 SE
Arne Holzhausen
Allianz SE
Markus Zimmer
Allianz SE