Conduit Re executive chairman Neil Eckert has called on the industry to step up its engagement around product design to meet the needs of companies as society transitions towards net zero.
Eckert said it was critical the industry stepped in to develop new types of coverage that take into account the shift now taking place.
“The transition process will mean a gradual reduction in the production of carbon, which in turn will mean a gradual reduction in the consumption of fossil fuels,” he said.
“This implies to me an enormous growth in the renewables sector between now and 2050 and a reduction in the size of the fossil fuels sector. As such, the best way the industry can respond is to develop the product range for renewables.”
By innovating and adjusting its product suite the industry can address areas where it is currently more challenging to obtain cover, such as early-stage technology, as well as protecting the revenue streams of companies leading the drive towards a more sustainable future.
“We have to provide products that respond to the changing world,” he said. “Companies looking to develop renewable energy projects really need insurance products that protect their revenue streams.”
He added: “I’d like to see the industry innovating even more around new products. As a starting point, in most cases only 15-20 percent of natural catastrophe losses are insured even in the most sophisticated markets.
“As an industry we need to engage with those who pay for these uninsured losses. We need to look at where uninsured risk is going – usually government organisations or equity markets – and work with these stakeholders. That makes good business sense.”
And the decommissioning of legacy assets can also present the industry with an opportunity to play an important role in the transition process, Eckert said.
“Decommissioning is a very particular type of risk as we have seen when dealing with vessels and other assets. “My view is the industry needs to work with the customer base and other stakeholders to make sure coverage is available.
“We want to work with stakeholders and support them in this transition process, rather than alienating sections of them.”
Adapting to future challenges also raises compliance issues for the (re)insurance sector. With increased focus on the ESG side of a business, a range of metrics have emerged by which company performance can be measured.
Regulators have sent clear messages to companies that disclosures need to improve, but there remains a lack of consistency around the metrics used by the industry.
“Conduit’s preferred route is to coalesce behind Climatewise and I believe that is also the view of many leading players in the London market,” he said.
Climatewise was founded in 2007 and has gained increasing traction in recent years, now boasting more than 40 members.
From an investment perspective, Eckert said relatively small changes to regulations could unlock considerable capital for green finance initiatives.
“At the moment it is very hard for us to invest in small-scale early-state entities, and it would require a coming together of various regulators as well as the rating agencies for this to change.
“Regulators are there to protect solvency requirements and any changes would need to be done in conjunction with other stakeholders.
“But at the moment, the P&C insurance market largely invests in short-dated, very liquid, low risk instruments.
“If the regulators gave us more flexibility or dispensation to invest in green impact investments this would increase the amount of cash we invest in this space. “It will not need a huge change to unlock a load of capital for green finance.”
Conduit targets local engagement as it plans social strategy
Fulfilling the social component of ESG can provide firms with a competitive advantage and should not be treated just as a compliance issue, according to Conduit Re executive chairman Neil Eckert.
Speaking to The ESG Insurer, Eckert said the social element was “extremely important, especially in the eyes of investors”.
He said the goal of the Conduit Foundation – established by the reinsurer at launch with Sir Nicholas Soames appointed as its independent chair – would be local engagement in Bermuda, where the company is domiciled.
“Education, local amenities and facilities will be core to its focus,” Eckert said.
With founder donations having matched Conduit’s initial funding for the foundation, Eckert said the process of evaluating potential projects and charities was now starting and expected to gather pace in September.
“Our goals will be local engagement and education with a focus on both racial and gender diversity,” he said.
“The S component of ESG is very important to Conduit,” Eckert said. “It can provide a competitive advantage and shouldn’t be seen as a compliance issue. “It can help companies access a broader talent pool and create the sort of business you want to work for.”