Axa CEO: Prevention is Paramount for Property Insurance in a Changing Climate
To maintain affordable property insurance rates in regions susceptible to climate change, the most effective strategy is to mitigate the impact of natural disasters, according to a leading insurance executive. Thomas Buberl, Chief Executive Officer of Axa SA, stated in an interview that prevention must become “a mandatory part” of insurance to ensure that climate risks remain insurable. The approach involves shifting “our own activities toward helping the customers to better protect their properties.”
Buberl cited the recent wildfires in Los Angeles as a prime example. He indicated that rebuilding efforts should prioritize non-flammable construction materials to minimize damage from future blazes. “How will these buildings be rebuilt?” he questioned. “Concrete buildings didn’t burn, only wood buildings did.”
This catastrophe in Los Angeles drew global attention to the crisis unfolding in the California insurance market. In recent years, insurance carriers have reduced their presence in areas prone to wildfires, citing that rising disaster costs combined with state regulations limiting rate increases have made providing coverage unprofitable. This situation is playing out worldwide, where rising temperatures are increasing the frequency of natural disasters and the damage they inflict on properties. Insurers are responding by raising prices or, when not possible, reducing coverage, which sometimes leaves homes uninsured.
The ‘Piggy-Bank Mechanism’ and Public-Private Partnerships
Buberl proposed prevention measures that include “public-private partnerships” to combat the emerging situation. He used France’s existing insurance scheme, which spreads the cost of natural disasters across a broader pool of payers, as a model. Buberl called this a “piggy-bank mechanism.” He explained the idea as a means to “put money aside frequently instead of suffering from a big peak when the natural catastrophes end up happening.”
The Axa CEO referred to the French compensation system, known as Cat Nat, which has been in place for over four decades. Under this scheme, all property and casualty insurance policies automatically include coverage for natural disasters financed by an additional premium set by the government. Furthermore, French insurers have access to unlimited reinsurance through the state-backed reinsurer, CCR.
In 2023, Cat Nat’s payouts exceeded its revenue for the seventh year in a row, which led to an almost doubling of the rate charged to homeowners, according to CCR. CCR pointed to climate change as a significant factor in this decision. CCR’s 2023 annual report noted, “The insurability of climate risks” has become a pressing concern as “some insurers started to plan their withdrawal from geographic regions previously considered hazard-free.”
Axa’s Perspective and Reinsurance Market Trends
In its full-year earnings report released last Thursday, Axa estimated losses of around €100 million as a result of the Los Angeles wildfires. “We are large in the US but very much focused on commercial properties, which were less affected by the fires than residential properties,” said Buberl.
Speaking about the renewals of reinsurance contracts, which occur at the beginning of each year, Buberl noted that the prices were “much lower” than in earlier years, and even “negative” in certain instances this year. However, he cautioned that the Los Angeles wildfires are likely to “give a spike for a tighter market.”
Buberl, who has led Axa since 2016, has repositioned the company to emphasize property and casualty and health insurance over life insurance.
