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SCOR: Common Cause Needed on Climate Change

Michel Blanc ( SCOR 2019 ).jpg

The industry must move together on climate change and achieving net zero emissions, said Michel Blanc, SCOR’s CEO of Reinsurance.

SCOR recently joined seven of the world’s leading (re)insurers in forming the Net-Zero Insurance Alliance. How will you support clients as they strive for a net-zero emissions business model?

I believe that an insurers’ ESG expertise and rating will soon be as valued as financial strength.

In line with the NZIA initiative, SCOR is committed to achieving net zero by 2050. We are engaging with our clients to achieve this goal together. There are two particularly challenging aspects: one is portfolio driven and the other related to supporting actual projects that lead to carbon reduction.

On the first issue, we want to engage with our clients on their ESG practices, performance, and objectives. We are leveraging the Task Force on Climate-Related Financial Disclosures (TCFD), which was created in 2015 by the Financial Stability Board (FSB) to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders. Importantly, we are also working closely within the NZIA to create the right framework for the industry in terms of metrics and target-setting protocols for emissions embedded within insurance portfolios.

On the more concrete actions needed to reduce CO2 emissions, we are engaging more in the development of renewable energy alternatives, such as solar and wind. The evolution of windfarms is particularly interesting in the context of floating windfarms for deep sea locations. SCOR has the construction and operational expertise needed to cover such risks.

Carbon capture techniques will also become more important. As well as technological solutions, SCOR’s agriculture team is working on specific projects with governments and insureds in natural carbon sinks using forests.

Is it possible to see net zero as an opportunity?

Offshore windfarm insurance is already one third of our energy portfolio in terms of premiums. Clearly, new energy is a business segment that insurers should be careful not to miss out on– it’s an opportunity for both insurers and reinsurers that have the technical expertise. The expertise we have developed at SCOR will obviously be useful to clients that wish to expand in the area.

I believe that an insurers’ individual ESG expertise and rating will soon be as valued as financial strength.

Do you feel that the (re)insurance industry is sufficiently engaged with climate change risk?

It varies depending on the region and area of climate change. P&C insurers are aware of climate change, but concrete action from them is limited. ESG thinking among many P&C insurers is unfortunately often rather superficial.

The industry is engaged in the physical risk implications of climate change and its effect on events. But the industry is less engaged in terms of transition risk where there is less certainty on the outcome, or its ramifications to do with budgets, litigation, technology. Therefore, there is less commitment.

P&C insurers are aware of climate change, but concrete action from them is limited.

There is a lot of uncertainty around climate related litigation, and we think it will increase as more governments increasingly legislate to support their net-zero carbon ambitions.

The timing and planning of taking climate change action is an important consideration for insurers. It’s crucial, therefore, that as an industry we must move forward together, and the convening power of the UN has greatly helped in the establishment of NZIA.

All the NZIA participants are European companies: will others from around the world join?

The eight founding members are headquartered in Europe, but they are all leading global insurers and reinsurers. This may in part reflect increased political priority around climate change in Europe, but I expect companies from outside of Europe will also join the NZIA soon.

It requires massive investment from everyone, including in emerging economies, and without a coordinated effort on climate change it is going to very difficult to meet the objectives of the Paris Agreement.

What are the critical areas of climate change risk for insurers?

Assessing the inside-in effects of climate change modeling on reinsurance property and cat portfolios is a big challenge as we must embed long term trends in our models, due to climate change on generated large-scale events, that are essentially built specifically for the current climate. SCOR selected 20 climate scenarios covering six perils/geographies to assess the climate change impact on events formation. For instance, with tropical cyclones we model their poleward migration (or track changes) due to climate change, hence changes in landfalls, to assess the impacts on sea level rise and tropical cyclone intensity at landfall and rainfall. While results are still under review, findings confirm assumptions made based on observations in recent years.

Does SCOR have any further plans for climate risk mitigation initiatives?

We are aware of the outsize effect that increasingly severe and frequent events can have in poorer countries. As a result, SCOR is leveraging its expertise and working closely with selected partners to develop tailor made solutions that address the protection gap, including cat schemes and parametric solutions.

For instance, forests are important carbon pools which continuously exchange CO2 with the atmosphere. Sustainable forest management is key to preserve this mechanism. SCOR is actively reinsuring forestry operations around the world. One key element in our risk selection process is to understand the insured’s forestry management practices and their potential impact on the environment.

SCOR is also closely following the development of green hydrogen technology. It is produced by electrolysis, the process of separating water into hydrogen and oxygen. When the electricity used in the process comes from renewable sources, such as wind or solar, the result is a zero-carbon hydrogen. However, priced at around $6 per kilogram, green hydrogen is the most expensive form of hydrogen to produce.

Green hydrogen will be useful in many areas, including steel production.

There is only one green hydrogen plant under construction, which is in Saudi Arabia. It will be in operation by 2026. We are working with a client and a broker to provide CAR insurance cover for this plant.

We feel that it is a low carbon technology that will be useful in many areas, including steel production.


ABOUT THE NET-ZERO INSURANCE ALLIANCE
As risk managers, insurers and investors, the insurance industry has a big role in supporting the transition to a net-zero economy. The UN-convened Net-Zero Insurance Alliance (NZIA) brings together eight of the world’s leading insurers and reinsurers to play their part in accelerating the transition to net-zero emissions economies.
They are committed to individually transitioning their underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100.
NZIA members will individually set science-based intermediate targets every five years and independently report on their progress publicly on an annual basis.
The NZIA will build on the pioneering work that the founding signatories have already begun as investors through their membership of the Net-Zero Asset Owner Alliance where all eight NZIA founding members are already individually setting science-based 2025 decarbonisation targets for their respective investment portfolios.
The NZIA’s founding members are AXA (Chair), Allianz, Aviva, Generali, Munich Re, SCOR, Swiss Re, and Zurich.

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