Climate change: Assessing an emerging risk impacting insurers

When most people think of climate change, they picture wildfires, floods or melting ice caps – events typically associated with property and casualty insurance. However, the implications of climate change extend far beyond physical infrastructure. For life insurers and underwriters, the evolving climate landscape is reshaping how we assess risk, price products and work to protect Canadians' financial futures.

For professionals in the Canadian insurance industry, comprehending the health-related impacts of climate change is becoming increasingly important for providing informed client guidance and conducting accurate risk assessments.

Climate change as a public health crisis

Experts, including the World Health Organization and Health Canada, have identified several ways climate change is already affecting human health, including air pollution and extreme heat, which in turn contribute to disruption of food systems, the spread of vector-borne diseases and mental health deterioration. ^{footnote 11} The health impact of these factors are not abstract: they are measurable, growing and directly relevant to life insurance underwriting.

Air pollution

Air pollution stands out as one of the most pervasive and well-documented health risks associated with climate change. Rising global temperatures lead to increased concentrations of ground-level ozone and fine particulate matter, both of which are linked to serious health outcomes.

In Canada, air pollution is estimated to contribute to over 15,000 premature deaths annually. ^{footnote 22} The health effects of air pollution are particularly severe for vulnerable populations, including the elderly, children and individuals with pre-existing respiratory or cardiovascular conditions.

Chronic exposure can exacerbate asthma, chronic obstructive pulmonary disease (COPD) and emphysema. Moreover, long-term exposure to airborne pollutants has been associated with increased incidence of lung cancer and cardiovascular events such as heart attacks and strokes.

From an underwriting perspective, applicants residing in regions with persistently poor air quality may present elevated long-term health risks, potentially influencing both insurability and pricing.

Extreme heat

Extreme heat events are becoming more frequent and intense across Canada, particularly in urban areas where the “urban heat island” effect amplifies temperature extremes. It’s estimated that over the next 30 years, parts of Canada can expect more than twice as many extremely hot days per year as we currently experience. ^{footnote 33}

Heat is often referred to as a “silent killer” because its effects on the human body can be insidious and gradual. Unlike more visible natural disasters, heat-related illnesses often go unnoticed until they become life-threatening. Prolonged exposure to high temperatures can impair the body’s ability to regulate internal temperature, leading to heat exhaustion, heat stroke, and exacerbation of underlying conditions such as cardiovascular disease, diabetes and respiratory disorders.

Individuals with chronic illnesses and older adults are particularly at risk. For life insurers, this trend underscores the importance of considering environmental factors in risk assessments.

Rising temperatures can also contribute to increased water demand, altered rainfall patterns and water quality degradation. The resulting water contamination and shortages–or flooding–can compound the health risks already discussed. Additional areas of concern include:

• Food and nutrition challenges
  Droughts, floods and shifting growing seasons are making it harder to grow food. That can mean fewer fresh, healthy options, leading to increased risk of health issues like heart disease and diabetes. These are major concerns for life insurers.
• More insects, more disease
  Rising temperatures are also helping ticks and mosquitoes spread to new areas. As a result, diseases like Lyme disease and West Nile virus are becoming more common in Canada. These diseases can have long-term health consequences and sometimes fatal outcomes.
  
• Mental health impacts
  Natural disasters, smoke-filled skies and ongoing climate anxiety are taking a toll on people’s mental health, too. Anxiety, PTSD and depression are becoming more common after climate-related events.
  

What this means for life insurance

Traditionally, insurers have relied on stable actuarial models based on historical mortality and morbidity data. Climate change may destabilize traditional actuarial models by introducing new risk factors that are difficult to quantify. The evolving health risks associated with climate change have the potential to influence underwriting practices in several ways. Insurers may need to:

• Look at where people live - Are they in areas with poor quality, heat risk, or food insecurity?
• Consider long-term health trends - Will certain chronic conditions become more common due to environmental stressors?
• Factor in occupational exposure - Are some individuals more exposed to heat or pollution more than others because of their jobs? They may be more vulnerable to heat stress and air pollution.

While the full impact of climate change on life insurance is still unfolding, the industry is beginning to adapt. Just as property insurers are developing models to assess climate risk, life insurers need to move forward with integrating climate risk into long-term planning. Underwriters, for example, should review their guidelines, particularly those on respiratory and cardiac disease, to evaluate whether the same guidelines that were applicable years ago will remain relevant in the future.

At the end of the day, life insurance is about protection. As the environment changes, insurers need to evolve to help ensure Canadians are adequately protected in the face of new and emerging risks.

¹ W.H.O, Climate change impacts on health

² Health Canada, Health Impacts of Air Pollution in Canada

³ Government of Canada

The information in this publication is intended as a summary of our products and/or services and may include projected values based on a set of assumptions. Actual results may not be guaranteed and may vary. Please consult the appropriate policy contract for details on the terms, conditions, benefits, guarantees, exclusions and limitations. The actual policy issued governs. Each policyholder’s financial circumstances are unique, and they must obtain and rely upon independent tax, accounting, legal and other advice concerning the structure of their insurance, as they deem appropriate for their particular circumstances. BMO Life Assurance Company does not provide any such advice to the policyholder or to the insurance advisor. 

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