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This report seeks to understand how the insurance industry can refine the way it defines, measures, and underwrites secondary perils amidst an evolving climate risk landscape. The report, written in collaboration with Deloitte, outlines key issues the insurance sector faces regarding secondary perils and the surrounding discourse, and identifies the main challenges that inhibit the industry from taking requisite action. The report concludes with high-level, practical recommendations to empower the full insurance value chain, with the goal of increasing financial, social and climate resilience and raising awareness of the urgent need for change.

Inconsistency in the definition and use of the term secondary perils is a key problem observed throughout the research and report. The report finds there are three key characteristics of a peril that influence whether it tends to be categorised as either ‘primary’ or ‘secondary’. Secondary perils are usually considered to fall into at least one of the following categories:

  • Perils with a lower frequency/severity and impact than others; and/or 
  • Perils that take place as a result of another event; and/or 
  • Perils that are less well and less widely modelled.

Other significant issues identified by the paper include the lack of quality and consistency in secondary peril data, differential treatment of secondary perils across the insurance value chain, and changes in physical landscapes due to climate change and non-climate shifts, which are contributing to the rapidly changing nature of secondary perils. This changing nature of secondary peril risk threatens societal, financial and physical resilience worldwide.

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