Can you really not see this black swan coming? Managing climate risks in an insurance company

Insurance companies still struggle to quantify the impacts of climate-related risks (CRs), which contributes to the underestimation of these risks despite worsening climate change. Most research on this topic focuses on technical improvements to risk management, often neglecting psychological factors. This paper explores how the dynamics between psychological distance, abstraction, and quantification influence CR management within an insurance company. In total, 28 semi-structured interviews and one and a half years of participant observation were conducted in a large Canadian insurance company. Drawing on construal level theory and the literature on the sociology of quantification, the findings reveal that psychologically distant and abstract mental representations of CRs, coupled with uncertainty in quantifying their impacts in a number-driven industry, reduce people's perceptions of the probability and importance of CRs. This study contributes to the literature by offering novel theoretical perspectives on how psychological factors influence the management of CRs. It also suggests managerial implications, such as the need to integrate qualitative tools alongside quantitative models to improve the management of complex risks. Lastly, future research avenues are discussed. • Novel links between construal level theory and the sociology of quantification. • Psychological proximity to climate risks fosters preventive management. • Quantification only partially reduces psychological distance from climate risks. • Quantification increases (rather than decreases) the abstraction of climate risks. • Quantification leads to an underestimation of complex and long-term climate risks.