With this November’s COP26 talks now less than three months away, the P&C industry is continuing to debate and formulate the role it should play in helping meet some of the challenges posed by climate change.
The COP26 event – which takes place in Scotland – has four main goals, each of which the industry is well-positioned to help facilitate. The first, and most high profile, is to secure net-zero carbon emissions by mid-century and keep the goal of limiting warming to 1.5 degrees within reach.
The event will also see the formal launch of the Net-Zero Insurance Alliance, chaired by Axa with Allianz, Aviva, Generali, Munich Re, Scor, Swiss Re and Zurich as founding members. All have committed to transition their underwriting portfolios to net zero by 2050.
Countries will need to commit to several measures in order to meet the net-zero target, including accelerating the phase-out of coal, curtailing deforestation, speeding up the switch to electric vehicles and encouraging investment in renewables.
On the latter point, Lloyd’s recently set out a series of initiatives focused on developing coverage around offshore wind, hydrogen and nuclear. A healthy insurance market for these types of energy will in turn help facilitate investments that will help meet COP26 goals.
And there are several other ways in which the insurance industry can help play a role in meeting the goals of COP26.
One of the objectives is to adapt to protect communities and natural habitats. This includes the creation of defences, warning systems and resilient infrastructure.
”P&C insurers have to be central in this process. Why? Well, first because we’re good at it…”
Over the past month Axa XL has been named as capacity provider for the Willis Towers Watson-structured Mesoamerican Reef Fund insurance program, just one example of recent industry efforts to protect and restore ecosystems.
The insurance sector also provides products that can help mobilise climate finance and enable trillions of public and private sector finance to be unleashed. Developed countries have committed to mobilise $100bn in climate finance each year. Insurance can play a role in helping reach this goal.
The other key goal of COP26 is to work together to deliver solutions. Only through collaborative action between governments, businesses and civil society can action to tackle the challenges of a changing climate be accelerated.
”If we don’t play a central role, then we risk being marginalised and drifting into irrelevance in the eyes of policymakers and our future customers.”
P&C insurers have to be central in this process. Why? Well, first because we’re good at it. As an industry, we have been underwriting environmental risks for hundreds of years. No one is better placed to mitigate risk, model and calculate its probability than insurers.
Second, we’re influential. We can nudge good behaviour and penalise bad. Again, the industry has been doing this for decades. It is the reason why buildings have fire extinguishers and sprinklers, for example.
And third – if we don’t play a central role, then we risk being marginalised and drifting into irrelevance in the eyes of policymakers and our future customers. There is a case to be made that the industry did not have a good pandemic in reputational terms. Let’s use this challenge as an opportunity to be seen as a force for positive action.
But for the industry to maximise its role and its influence it must present a coherent voice. Inevitably, there are multiple different bodies now focused on climate issues within the sector, including the aforementioned Net-Zero Insurance Alliance and the separate Lloyd’s initiative. There are a number of others too.
These bodies need to work together both in the run-up to COP26 and beyond. A cohesive approach will help the industry when delivering the message of what it can – and will – contribute to the global response to climate change…