Climate change poses a challenge to the (re)insurance industry on multiple fronts, but can broadly be broken down into two areas: action to mitigate its own contributions to emissions - both operationally and through its underwriting and investment activity - and action to build resilience through helping society adapt to changing weather patterns.
It is on the latter that the industry is most comfortable, as demonstrated by some of the initiatives unveiled during the course of COP26 and the ongoing work of entities such as the Insurance Development Forum and others in driving forward this agenda.
But it is on the former the industry has found it more difficult to articulate its position, particularly when faced with activists calling for a more rapid abandonment of fossil fuel-based clients than the industry is willing to take.
Many cite their existing relationships as a rationale for continuing to support these clients through the transition to net zero.
The question as to what a climate-focused insurer might look like if it launched today is answered in today’s edition by Julian Richardson, the co-CEO of Parhelion, which is looking to raise $500mn ahead of a planned underwriting launch on 1 January.
Richardson is clear that fossil fuel-based sectors would not make it through the company’s screening process, also asserting a hard line on the marine and aviation sectors for their lack of a “responsible stance in delivering their own commitments to emission reductions”.
Pressure on these, and other, sectors to step up will likely intensify following the release of a Climate Action Tracker report today which warned the world is projected to warm by 2.7°C by 2100, based on actual government policies (rather than pledges).
The Climate Action Tracker report is backed by several organisations, including the Potsdam Institute for Climate Impact Research in Germany.
The organisation said the main driver of the gap between promises and projections was continued coal and gas production.
A separate study released today by the UK Met Office has warned the number of people living in areas affected by extreme heat stress could increase nearly 15-fold if the world’s temperature rise reaches 2°C.
Such a temperature rise would take the number of people living in extreme heat stress from 68 million today to around one billion, the report warned.
These warnings will hang over the remaining days of talks at COP26, where there is little indication that talks will deliver substantive agreements on key issues.
From an insurance perspective, the talks have played a key role in raising awareness around climate issues and provided a platform on which further momentum can be built in 2022 and beyond.
The transition towards net zero will ultimately bring benefits and opportunities for the industry, with the demand for risk mitigation and transfer tools likely to accelerate as the world moves away from a fossil fuel economy.
As Munich Re CFO Christoph Jurecka said following the group’s earnings announcement this morning, “It is imperative that COP26 is followed up with immediate action”
Whatever the political outcome from the COP26 talks, this should not be used as an excuse to derail the momentum building across the industry to play its role in helping the world transition towards a net zero economy and build resilience against the climate shocks yet to come.