Forget the disappointments of COP26. This is the insurance industry's opportunity to step up and drive the Race to Zero by offering industry-wide transition incentives, a building-back-better approach to claims and funding crucial scientific research. Such an approach will improve the underlying risk to the benefit of all stakeholders.
It is fair to say there was some disappointment following the COP26. A feeling that the targets agreed in the Glasgow Climate Pact did not go far enough, with only a few countries making their pledges legally binding.
What was also clear at the climate summit was the essential role of insurance, both in absorbing the physical toll of a more extreme climate but also, and crucially, in driving risk mitigation and resilience.
As world leaders backed away from making tough decisions, the opportunity grew for the insurance industry to drive the transition we all need to see. But it needs to be joined up, transparent and go beyond the requirements of TCFD and other climate risk reporting frameworks.
Re/insurers, MGAs and brokers know that the "E" in ESG is far more than a tick-box exercise. They also know that insureds that are incentivised to invest in climate adaptation and mitigation ultimately benefits their book of business by reducing claims volatility.
To date, we have seen admirable industry initiatives that aim to bring some of our best thinkers around the table to come up with joint solutions and initiatives, including innovative risk transfer schemes for some of the world's most vulnerable and underinsured regions.
One of the lasting images from COP26 was when the foreign minister of Tuvalu addressed the summit knee-deep in water. It was an undeniable representation of the climate crisis that faces us all, but that will disproportionately hit our island nations.
The UN-convened Net-Zero Insurance Alliance holds great promise. There are examples of policies that offer premium discounts to energy firms that can demonstrate they are meeting their SDG targets. At Lloyd's, an ESG-syndicate is launching in January 2022. And Willis Towers Watson has made significant strides with its Climate Transition Pathway solution.
Time to scale up
But we need a consistent, industry-wide approach to drive and financially support and incentivise insureds' transitions to zero carbon. It is time to scale up some of these different approaches and get everyone to buy in.
By providing our clients with information that helps them to be better businesses, we also benefit ourselves and society more broadly. When their risks are better managed, they become better risks from an insurance perspective, whilst becoming greener and more sustainable.
From a risk mitigation perspective, the principle of 'building back better' must be widely adopted and discussed. It should become common practice that any flood-hit property, for instance, is restored in a flood resilient manner - and that we have frank discussions about insurability.
I always remember a photo taken during a UK flood event. It was of a field clearly within a flood plain, completely submerged in water with only the top part of a sign showing, promoting an exciting new housing development. In this country, we have a shortage of housing stock, but we need to be building with future climate in mind. These, after all, were the principles upon which the government-backed Flood Re risk pool was based.
Insurers and their loss adjusters and claims managers should be funding clients to rebuild in a sustainable way, rather than perpetuating the status quo.
Some insurers are being very creative in the remediation and adaptation type work, because they recognise it improves customer retention and it's the right thing to do. But the examples are too few and far between.
As an industry, we must also invest more in research as eventually the science and data will help to inform policy. We need more industry practitioners to invest in initiatives like the Nekton Foundation (where I sit on the Board of Trustees), which carries out deep ocean exploration to gain scientific evidence and knowledge so we can better protect our natural world through innovative policy design.
I have always been surprised the insurance industry has not been more involved in such crucial research. The data and insights generated are essential to our transition journeys and restoring and protecting naturally resilient ecosystems, such as coral reefs and mangrove forests.
And, as we have mentioned before in this blog, actions speak louder than words. As an industry, we have to walk the talk, be authentic and embrace the changes required. It requires true leadership and the ability to collaborate for a greater purpose, even if that initially means giving away some of the secret sauce
It struck me as depressingly ironic that on the day I read about the new Lloyd's ESG framework, there were two supercharged petrol-fuelled cars sitting outside Number 1 Lime Street - supercars waiting to be flogged to wealthy City workers. It is the kind of activity that has to be consigned to history, because it sets the wrong tone at a time when we need to be leading by example and being altogether more accountable as an industry.
