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Insurers embark on path to transformative climate action

Insurance companies will have to collaborate worldwide to be able to turn their underwriting businesses into a fully-fledged climate agenda, speakers at a recent event said.

Speaking at a webinar by Swiss Re and the UN Environment Programme (UNEP) Finance Initiative’s Principles for Sustainable Insurance (PSI), Butch Bacani, programme leader at the UNEP FI’s PSI, pointed to the critical role insurers play by engaging with and supporting their clients in the low-carbon transition.

“Ultimately, there has to be a serious intention by real economy players to decarbonise their business models and take forward net zero pathways. In that context, the insurance industry, as an investor and insurer, can be a real partner and amplifier of that agenda.”

The panellists explored how European insurers can align their portfolios with the Paris Agreement and widen their climate agenda.

To push the low-carbon transition, insurers have already started to set net-zero emissions pledges for their investment portfolios, with many targeting 2050, and also taken first steps in their underwriting business.

Climate insurance business

Edi Schmid, group chief underwriting officer at Swiss Re, explained that European insurers have, so far, applied climate change criteria to specific transactions to exclude some of the most harmful and emission-intensive fossil fuels from their portfolios.

Going forward, he said that a more systematic and quantitative approach is needed to achieve the net-zero goal.

“We need to find ways to measure the climate change impacts of our [underwriting] portfolios,” he said.

This would allow insurers to measure the progress of their clients in reaching the portfolio targets and set the right incentives, he explained.

Ovais Sarmad, deputy executive secretary of the United Nations Framework Convention on Climate Change (UNFCCC), emphasised the crucial role the insurance industry can play in managing the climate emergency, as global warming has already reached 1.1° above pre-industrial levels.

“You are the experts in understanding and pricing climate risks, and there is a huge scope for better climate-related risk management across the industry; and awareness on the purpose of how the industry can contribute to the attainment of the Paris Agreement goals,” he said.

Linda Freiner, group head of sustainability at Zurich Insurance Group, agreed while also pointing to a number of strategic and practical considerations that would need to be solved first, such as creating science-based targets.

As the business of the insurance industry is threatened by global warming, Freiner said that “we are not going to have any customers left if we are not helping them to transition. We need to see our role as the driver of change instead of just insuring the change that is probably going to happen”.

Martin Weymann, head of sustainability, emerging and political risk management at Swiss Re, added that insurers which continue to seek short-term profit from unclean businesses will not win in a future low-carbon world.

“There are so many opportunities on all the technologies needed, and also nature-based solutions on the transition, that, in the long term, this competitive advantage will be much bigger because these are the future risk pools that we are looking at,” he said.

Moving in collaboration

When it comes to setting out on a more transformative climate path for underwriting businesses, Schmid explained that insurers need to work together on real actions.

The panellists highlighted that collaboration among insurers is key.

Renaud Guidée, group chief risk officer at Axa Group, called for a global insurance standard that guides insurers worldwide: “It’s a matter of alignment between stakeholders.

“We need a level playing field beyond a few European pioneers. We need to make sure that there is a consistent framework worldwide; otherwise if we lead but there is no traction, [our actions] will be diluted. This is why the United Nations framework will be as important as ever.”

Bacani added that “there has to be market leadership on this agenda of creating potentially a net-zero insurance framework”.

He explained that underwriting and managing risks is the core of the insurance business, which is why it has taken some time to get to this point.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.