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Time to step up to the climate crisis

Time to step up to the climate crisis | Insurance Business UK

Time to step up to the climate crisis

The Prime Minister dismissed them as ‘uncooperative crusties’.  The appearance of a number of high-profile celebrities was portrayed as ‘woke washing’.  The apparent hypocrisy of one person who drove to the event in her diesel car was noted.  Getting to the other side of Bank station for the workers of EC3 became a tad inconvenient. 

But despite all this, one thing did become clear from the recent Extinction Rebellion protests. Notwithstanding the thoughts of certain residents of Pennsylvania Avenue, the debate around climate change is no longer about if there is a crisis to confront, it is about how. And as the world progresses its thinking on this crucial question for all our futures, there is a vital and pivotal role for the insurance industry to play in these discussions.

We will be pivotal because we touch the necessary response at so many levels. Insurance businesses themselves need to build the potential for an increase in extreme weather events into their own risk management plans. We need to work with clients to ensure that they are similarly building adequate resilience into their operations – buildings more resistant to flood damage, better designs to resist wind damage and the like. And we need to ensure that good behaviour in this regard is rewarded with reduced premiums and advantageous coverage. As major investors in the economy, insurers need to ensure they incentivise the development and adoption of sustainable investment products. As intermediaries we need to ensure that our clients’ climate change preferences are reflected in any advice that we give them. 

And then there is the need to determine how we deal with existing customers in the fossil fuel industries. Already, over the last couple of years, we have seen carriers such as AIG, Lloyd’s, Munich Re, Swiss Re and QBE – not insignificant players – announce their intention to withdraw from thermal coal and other mining markets. Announcing his firm’s new approach, QBE CEO Pat Regan, said: “Consistent with the scientific reports of the Intergovernmental Panel on Climate Change, we recognise that a failure to rapidly decarbonise our economies will lead to increasingly volatile and severe weather-related events. This new energy policy is consistent with that plan and confirms our intention to phase out all direct insurance services for thermal coal customers by 2030, at the latest.” 

While we must continue to treat existing customers fairly, we also need to recognise when they are part of a legacy industry.

As the former Chairman of Willis, Joe Plumeri used to say that insurance is the DNA of capitalism. And as our capitalist societies and economies seek to adapt to the challenge of climate change, insurance needs to be the DNA of how that process develops as well. 

Even if we didn’t get that argument for ourselves, our various regulators stand ready to make sure the point hits home. At the trans-national level, the European Insurance and Occupational Pensions Authority (EIOPA) launched its sustainable finance action plan in June 2018. This pulls out some of the points I have touched on above – that insurance firms and intermediaries need to be managing and mitigating Environment, Social and Governance (ESG) risks; that we need to take account of client preference; and that insurers need to have a sustainable approach to their investment strategies.

And then, this month, our own Financial Conduct Authority (FCA) published a feedback statement on climate change and green finance. In this it announced possible new rules to improve climate-related disclosures by firms; rule changes requiring Independent Governance Committees to oversee firms’ ESG policies; and its expectations around consumers’ access to green financial products. It also confirmed its continuing commitment to the Climate Financial Risk Forum which it founded jointly with PRA earlier this year.

Movements such as Extinction Rebellion the Green New Deal, co-sponsored by Alexandria Ocasio-Cortez, have put the challenge of the climate crisis squarely at the forefront of political debate. That, in turn, has driven focus on the crucial role that insurance in particular can play in identifying and mitigating climate risk and in designing products that incentivise the right behaviour. Once again, our industry is at the heart of solving society’s biggest problems. Aren’t they lucky we are here?