Over the next two weeks, the UN’s COP26 climate talks will bring together a melting pot of politicians, scientists, lobbyists, activists and private sector representatives who will attempt to deliver on the promises set out in the Paris Agreement six years ago.
Within the anticipated gathering of around 25,000 people will be a sizeable representation from the (re)insurance industry, who will outline the critical role the sector has to play in the transition towards net zero.
Throughout the event The Insurer will bring you a daily newsletter highlighting key developments impacting the insurance industry from that day’s discussions. In this preview edition we look ahead at some of the insurance-related announcements scheduled to take place in Glasgow.
Insurance sits at the heart of global economic activity, facilitating innovation and providing financial support in the event of loss and damage.
But as the world evolves its relevance has faced scrutiny, with restrictions on coverage and exclusions in the aftermath of losses meaning the protection gap is rising in both developed and developing economies.
Swiss Re’s Sigma research has estimated the global protection gap of uninsured economic losses at more than $1.2trn, a figure that continues to rise as asset values shift towards intangibles. One of the key justifications behind Aon’s planned merger with Willis Towers Watson last year was the need to develop solutions to meet the scale of challenge that lies ahead.
The need for the industry to be dynamic, expand its coverage and insure tomorrow’s risks is particularly pertinent as we look ahead to the next two weeks of climate talks.
A critical role
Alongside its essential role in supporting the global economy, the (re)insurance industry will have to play a critical role in supporting its transition towards decarbonisation.
Insurers have tools at their disposal to do this, and can wield their influence through both a soft nudge – we will reduce premiums if you invest in this – and hard, binary power – we won’t offer cover unless you do this.
“The (re)insurance industry will have to play a critical role in supporting the transition towards decarbonisation”
The industry must continue to make its message heard to governments and regulators about the tools it needs from them to allow it to do this.
Ahead of COP26 a series of commitments have been made by leading industry players around decarbonisation, with Lloyd’s the latest to sign up to the Net-Zero Insurance Alliance ahead of the event.
Pressure to speed up decarbonisation could arise from governments, regulators and activists in due course, but the industry will need to be pragmatic in its approach to doing this.
Several economies remain reliant on fossil fuels and the transition to a fully renewable energy system is no easy task.
Ending coverage will likely see others fill the gap and have little overall impact on emissions. What the industry does have – and can develop further – are the tools to facilitate the transition.
In many cases insurers believe they can best serve the climate agenda by educating and supporting clients through the transition process and it is vital that this is communicated to governments, regulators and other stakeholders as we move forward.
Taking centre stage
Talks at UN COPs can progress at a slow pace but these events can make a difference – they have a track record of producing action plans, mandates, protocols, platforms and agreements.
This is a perfect platform for the insurance industry. In order to address the challenges posed by climate change, we need to marry the science with the practicalities for the appropriate solutions.
“For those industry leaders attending the next two weeks of events, our message is to showcase what the industry is good at and the meaningful impact it can have in addressing climate challenges”
The industry spends millions every year researching climate with stochastic modelling and data on losses, frequency, severity and probability.
It also has risk mitigation, analysis, claims paying, fraud detection and risk pricing tools. And as Glasgow will showcase, it is developing other initiatives to further aid the transition towards net zero and close the protection gap.
For those industry leaders attending the next two weeks of events, our message is to showcase what the industry is good at and the meaningful impact it can have in addressing climate challenges.
If there’s one thing the industry excels at, it is collaboration. It has so much to offer and shouldn’t be on the sidelines of this event, but instead take centre stage as the world defines its path towards a more sustainable future.
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