As natural disasters continue to escalate, the real estate and insurance industries are grappling with mounting financial risks. In response to this growing threat, AXA Hong Kong & Macau (AXA), Marsh, and Link Asset Management (Link), supported by the Hong Kong Green Finance Association (HKGFA), have unveiled a new approach aimed at mitigating the impact of extreme weather events.
A recent white paper titled “Sustainability-Linked Insurance: Rewarding Climate Risk Adaptation” introduces the concept of Sustainability-Linked Insurance (SLI). This innovative model offers a property insurance solution that not only addresses climate risk but also incentivizes investments in resilience and climate risk mitigation strategies.
The white paper highlights the increasing challenges faced by the real estate and insurance sectors in Asia, where the frequency and severity of natural catastrophes are on the rise. In 2024, global insured losses from natural disasters soared to $140 billion, prompting insurers to raise premiums and tighten policy terms. However, these measures have proven to be unsustainable in the long term.
Historically, insurance companies have responded to extreme weather events by focusing on claims and increasing premiums. However, the SLI model takes a proactive approach. By assessing climate risks and making targeted investments in resilience, companies can secure financial benefits. For instance, Link Asset Management, with support from Marsh Hong Kong, managed to reduce its property insurance premiums by 11.7%, far exceeding the industry average of 3%. Additionally, Link secured an extra 7.5% reduction tied to its loss ratio, providing a direct financial incentive for long-term climate preparedness.
This new model presents a potential game-changer for real estate firms, offering a way to manage risks while encouraging sustainable practices that align with climate resilience goals.
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