Insurers have a huge role in addressing water-related risks

Insurers have a huge role in addressing water-related risks | Insurance Business America

Insurers have a huge role in addressing water-related risks

Access to water. For so many of us, it’s a given, but for so many others, it’s a daily battle. Recognizing this, AXA XL, the P&C and specialty risk division of AXA, decided to focus on access to water as one of its key environmental, social and governance (ESG) priorities. The global firm has expressed its commitment to addressing water-related risk, which it has described as “a very pervasive and a very global issue.”

“There’s a huge role that an insurer should be playing in terms of addressing this topic,” said Suzanne Scatliffe, global director, corporate social responsibility - AXA XL. “We know now that water availability is becoming less predictable in a whole number of places, both developing and developed markets, and the negative impacts to limited freshwater are numerous: poor health, interrupted education, gender inequalities, conflict, unreliable food production, the list is really endless. Ensuring that everybody has access to water is critical for all of those reasons.

“We also know that water will be the primary medium through which we will feel the impacts of climate change. So, as a mitigation strategy for climate, water is really very important, and of course, climate is very significant for many insurers.”

All industries rely on water to some degree, especially in the areas of raw materials, suppliers, direct operations, and product use. According to McKinsey, two-thirds of businesses have substantial water-related risk in direct operations or in their value chain. Typically, those risks are experienced in four forms: physical, regulatory, reputational, and stakeholder. Furthermore, the CDP - a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts – recently reported that US$301 billion of business value is at risk unless companies improve and innovate around water use, while the cost of response is estimated at US$55 billion.

“When we’re thinking about our clients across industries, nobody is completely untouched from the issue of water scarcity,” said Scatliffe. “And in almost all sectors, the cost of action is far less than the cost of inaction when it comes to being prepared for water-related risk. Having discovered all of this, we thought we’ve clearly got a role here in helping both our clients and our wider communities develop resilience to water-related risks.”

To frame its ambitions for its Valuing Water Initiative, AXA XL developed a theory of change based on five pillars: client awareness, the establishment of a Water Advisory Group, its partnership with WaterAid, engagement with AXA XL colleagues, and conducting research into drought risk.  

The insurer has been raising awareness via one-to-one interviews with clients across industries in the US, the UK, and France. It also held a more in-depth roundtable where clients could share the challenges they’re facing in terms of thinking about water-related risks, and discuss what role an insurance company could play in trying to address those challenges. Some of those participating clients then joined AXA XL’s newly established Water Advisory Group, which is predominantly an external stakeholder group made up of clients, NGOs, and water institutes, with some internal representation from AXA XL’s underwriting teams. The aim of the group is to compile the stakeholders’ collective expertise and use it to steer AXA XL’s work in addressing water-related risk.   

Through its partnership with Water Aid, AXA XL is helping the charity to ensure improved access to safe drinking water, as well as inclusive sanitation, in a region of northern India called Fatehpur, which is a water scarce district. They’re also supporting the long-term sustainability of the program by training community members on how to sustain drinking water, how to do water quality testing, how to treat water using appropriate resources that they already have access to, and how to maintain sanitation facilities.

“This all began pre-COVID. Obviously, when COVID hit last year, the importance of good sanitation and hygiene was really highlighted to the whole world. I think even some of us who have regular access to tap water, learnt how to properly wash our hands in adulthood,” Scatliffe commented. “The other great thing that WaterAid has been able to do is really reinforce the importance of good hygiene, working through both schools and community groups, and then also things like setting up soap banks, which again may be something we take for granted in the Western world, but it’s particularly critical given the pandemic that hit last year.”

Employee engagement is another pillar supporting AXA XL’s Valuing Water Initiative. Scatliffe explained: “We want to make sure colleagues realize both the social and the economic value of water, but also the simple actions they can take to become more aware of their own water consumption.” The insurer did this by offering a matching gift campaign, by inciting colleagues to pledge actions on a water-related theme in return for a $5 donation to WaterAid, and by offering webinars, resources and education to help employees understand how the issue of climate and water really intersects.

“To complement our outreach work, we’re also considering how drought risk could be better managed in the most vulnerable communities,” Scatliffe added. “We know that effective assistance for weather-related disasters really requires an understanding of the types of shocks a community may face, but also the combination and sequence of those events. We’re really thinking about how we can be a bit more nuanced in our approach to risk transfer solutions when it comes to weather, particularly drought, but also layering that with livelihood specific emphases. For example, a drought may impact a crop farmer in a very different way to how it might impact a cow and a goat farmer. How do we account for that?

“We’re doing some research with Penn State University, focused on drought risk in Somalia, which is a region highly vulnerable to localized drought. We’re really exploring how greater data could inform more effective risk transfer solutions from a business perspective, and, also, how we could leverage and provide that data to humanitarian agencies to help them with more effective relief response. There’s an opportunity here, obviously, for us to innovate, as well as provide support and benefits to vulnerable communities.”