If there is one message that industry reports, collaborations, roundtables and statistics have made clear in the last few years, it is that doing nothing when it comes to climate risk is no longer an option. Elaborating on this in a recent interview Adhiraj Maitra (pictured), director, insurance climate risk at Willis Towers Watson (WTW), noted the shift from viewing climate change as ‘society’s problem’ is thrusting financial services businesses into the role of catalysts for change.
Directly before he joined WTW in 2018, Maitra, who is an actuary by profession, worked with Lloyd’s of London, heading up its regulatory team as they looked after Solvency II-related regulatory work for the entire Lloyd’s market. What’s interesting, he said, is that looking back he can see the similarities between that role and his current responsibilities as both are focused on shepherding markets to make sure they are comfortable and confident with encroaching change.
“One thing Lloyd’s did really well around Solvency II and that I feel we at Willis Towers Watson are doing really well around climate is publishing a lot of guidance and a lot of thought leadership pieces and discussing ways to come up with different solutions that can be used by the entire market,” he said. “So, yes we’re doing a lot of projects with clients but we’re also publishing articles to engage the wider population because we need a cultural change as well.”
Again the parallel between Solvency II and climate resolutions is clear, he said, as jumping before being pushed is the key to proactively engaging with climate risk. Those companies that dealt with incoming regulation around Solvency II ahead of time, knew in advance the main pitfalls and challenges ahead and were better prepared to face them. Of course, Solvency II was a requirement but, though climate resolutions are yet not a requirement, Maitra believes it is only a matter of time before that push comes from the regulator.
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“The two big milestones that make people stop and think are the regulator and the investor,” he said. “In 2018, not many people were talking about climate change, then, in 2019, the PRA asked every insurance company to name one individual who is going to be responsible for climate. This was a big milestone because it led to a lot of companies suddenly being interested in climate and asking what they had to do, and what requirements and expectations they faced. The second big milestone was in December 2019 with the letter from Blackrock discussing climate risk.”
2020 then brought a slew of further guidances and letters from the PRA and other authorities which made investors start questioning insurance companies about their climate practices. 2020 was a kind of transition period when companies started realising they needed to think about climate, he said, while 2021 has become the time for action based on these considerations.
“The conversation has changed from ‘do we need to do anything?’ to ‘I think this what we need to do, now how do I convince our SMEs, our underwriters, our risk managers that they need to be part of the journey?’. So part of the work we’re doing is about exploring how you can take the entire company with you on this [climate risk resolution] journey. And I think the last 18 to 24 months have been brilliant as you can really see that transformation.”
Maitra believes that the COVID crisis has also helped tip this balance as insurance professionals are thinking more holistically about the range of risks that they face. They’re not just thinking about the business they write from an underwriting or investment perspective now, he said, but also about risks they haven’t previously considered. This kind of exposure management thinking ensures that when considered, climate risk is not evaluated as a siloed concern but as part of an overall risk framework.
The non-mandatory nature of many ESG goals means that senior sponsorship and support is required to drive change in insurance businesses, he said. Certain aspects, such as Lloyd’s publishing their ESG goals, can help publicise the changing conversation around sustainability and climate risk. Fundamentally, however, real change and real resiliency must be driven by each CEO, the C-suite and the board of directors.
All too often, discussions around climate risk focus on the stick to the detriment of the carrot, Maitra said, and when he and his team work with clients they emphasise not just their liabilities and risks but also the opportunities that accompany such forward-thinking. These opportunities around physical risk or transition risk could lead to insurance products that might not be profitable yet but will have an edge in five years. The bottom line for the C-suite will always be about the commercial aspect, as well as the social and ethical aspects, of change and so WTW emphasises these opportunities when developing a risk framework for its clients.
“Aside from the underwriting and investment opportunities, one of the things that’s not talked about enough within companies is the impact of this consideration on talent recruitment and retention,” he said. “One thing that has started to happen is companies being asked in interviews, ‘what’s your sustainability or ESG goal?’ or ‘what’s your sustainability criteria’ and if that draws a blank, you might end up losing talent to other companies who have a clear idea on what they want to achieve in this space.”