Is the insurance industry sufficiently well engaged with the global challenge of climate change? This was arguably the thorniest question up for discussion in our Ahead of the Curve webinar series, produced in collaboration with PwC.
Aon president Eric Andersen believes that the industry is acting prudently in the face of uncertainty. “Ultimately what we need is better information. Whether it's the investment and modeling capability understanding; what does the changing climate mean to our core products? And what new products do we have to develop?”
Andersen argued that the “sustainability” of insurance protection is vital if carriers are to attract the capital they need to cover climate-related risks: “I think it's crucial for us to be able to offer products that are needed, that are going to last over the long term," he said.
Speed to market shouldn’t be the industry’s main priority, Andersen believes. “It's really a question of understanding and education. And I think the industry is putting a lot of resource to that so that when products are developed, they're developed with the right analytic background, the right structure and capability, the right pricing: things that are needed to effectively innovate in a way that creates real value for clients over the long term.”
Giving his point of view as CEO of a young specialty re/insurer, Vantage Risk, Greg Hendrick said that social good can be met by insurance helping the energy transition happen over many years, even decades, from the current state of fossil fuel reliance to more renewable energy sources.
“While we don't play a big role in it, we see this as really being an opportunity to help that transition. And again, at the end of the day for us, we brought new capital into the business to try and close that gap between economic and insured loss on the catastrophe angle of climate.
“So we're trying to do our part in small ways. [But] I think the industry is in a tough spot caught between a group of folks that want change immediately. And the reality of the economy and society where the change that's going to happen will take a long time to transpire.”
Like Vantage Risk, Bermuda’s Mosaic is a recently formed specialty underwriter that doesn’t write catastrophe business per se. But co-CEO Mark Wheeler says that specialty lines will increasingly be affected by climate risk.
As an example, Wheeler points to the potential for civil unrest to follow on from a natural catastrophe, for instance. “There's little data to support that happening in the past but with nat cat’s continuing intensity in the world potentially causing social division then it could be a trigger; we would consider it a potential trigger to set off social unrest in a region.”
Paul Brand is a co-founder of Convex, a specialty re/insurer he established in 2019 with Stephen Catlin. Brand said that while climate risk is getting more attention in the boardroom of insurance companies, it’s clear that society and business as whole is not doing enough to mitigate it.
“We all know that things are getting worse, and we can measure it and we can see the science, but it's very difficult … for people to get the sufficient budgets and sufficient willpower.”
For its part Convex is sponsoring a multi-million-dollar partnership with the Blue Marine Foundation, a charity dedicated to restoring the ocean to health, and the University of Exeter. The Convex Blue Carbon Seascape Survey aims to improve understanding of the ocean’s role in the carbon cycle and its potential role in slowing climate change.
Global responses to climate change are neither significant nor fast enough to avoid permanent harm to our planet, according to territory leader of PwC Bermuda Arthur Wightman. Consequently, the insurance industry, as part of that overall global economic ecosystem, is partly accountable he said.
Insurers worry about the challenges of acting fast, to do with the absence of data, pricing adequacy, etc. It’s understandable, Wightman believes, but on the other hand there are “amazing” opportunities in climate risk for innovative insurers.
“I do feel though at all levels, climate responses must be collaborative, within and outside industry sectors, and they must benefit from political will.
“Sadly, I think for the greatest challenge - arguably of all time - not everyone is rowing in the same direction. And I think short term gains still are trumping longer term outcomes,” Wightman concluded.
