How the (re)insurance industry is taking the lead on climate change
Climate change has long been on the risk register of (re)insurers across the globe.
But while it is not a new risk for the industry, it has certainly gathered pace as a growing trend both from an underwriting and a corporate ESG perspective.
The increasing frequency and severity of extreme weather events has accelerated the pace at which (re)insurers need to understand the changing risk landscape when it comes to pricing and reserving for these risks (for more on this, see our article on secondary perils).
The lobbying and risk management measures put in place by the industry to help their policyholders are clear drivers of positive change, but many within the industry are going beyond these measures to also help the global drive towards improving sustainability.
Carolyn Rich, head of brand marketing and social responsibility at Allianz, says that (re)insurers have a responsibility to the world to help drive positive change.
“As underwriters and investors, we can support the transition from a carbon economy to a net zero economy,” she says. “Allianz has decided to lead this revolution because our future is at stake.
“By directing our investments toward green projects, we’re funding the infrastructure this new economy needs. By insuring sustainable energy equipment, we’re making sure it can power itself. We’re also supporting our employees, our brokers, suppliers and other partners to make choices that protect the environment.”
Yordanka Velichkova, catastrophe perils portfolio lead at Swiss Re, agrees with this sentiment, and says that the capacity made available through the (re)insurance market for covering risks is fundamental to the future success of sustainability initiatives.
“(Re)insurers play a role in providing risk transfer capacity, risk knowledge and long-term investment, using their understanding of risk to help households, companies and societies mitigate and adapt to climate change.” she says. “Capital is available. Long-term investors such as pension funds, sovereign wealth funds and the insurance industry manage about $80 trillion in assets.
“Together with the public sector, (re)insurers are well equipped to steer development away from high-risk areas and invest in protective measures such as green infrastructure. This keeps assets insurable while also improving the growth outlook.”
As well as supporting other sectors of society to improve sustainability, (re)insurers are also making positive changes of their own in the battle against climate change.
To this end, Allianz’s Rich says that the insurer has embedded environmental goals into its investment and underwriting strategies at a global level.
“We’re taking a stricter stance on oil and gas as we continue to pull out of coal, and we’re targeting net-zero operations by 2030,” she says. “At a UK level, we’re powering our offices with 100% renewable energy and we’re championing sustainable claims, with green parts for vehicle repairs and surface restoration for property works.
“We’re trying to influence the whole supply chain. Our sustainable procurement charter prioritizes suppliers with strong ESG credentials. And the Allianz Net Zero Accelerator is helping brokers measure, reduce and offset their carbon emissions.”
“We are tackling the climate challenge from all angles,” she adds.
Meanwhile, Swiss Re’s Velichkova says more still needs to be done in order to effectively combat climate change.
“Mitigating climate change requires a whole menu of measures,” she says. “More carbon-pricing policies combined with incentives for nature-based and carbon-offsetting solutions are needed, as well as international convergence on taxonomy for green and sustainable investments.”
And one insurance company looking to help in this regard is Kita, which recently launched with the aim of insuring carbon removal solutions.
This innovative new solution – the first of its kind – has the potential to add significant momentum to the selling of carbon units, something that historically has lacked appropriate insurance products.
It also demonstrates how pivotal the (re)insurance industry can be for the development and furthering of innovative solutions in the fight against climate change.