Regulators must play their part in the journey towards net zero by enabling carriers to innovate on new products without being constrained by a lack of historical data, according to Christopher Croft, CEO of the London & International Insurance Brokers’ Association (Liiba).
Speaking online to the Association of Lloyd’s Brokers, a US-based group of Lloyd’s coverholders, Croft said that the journey to net zero will mean doing things differently and embracing new technologies.
In June, LIIBA published its policy paper Our Role in Net Zero, which made the case that London’s specialist brokers, working closely with insurers, possess a unique combination of skills and expertise that will enable businesses to make the changes necessary to achieve the net reduction in carbon emissions.
However, he argued that the need for innovation means that regulators will need to be less demanding in their requirements for data because in some cases that data will not exist.
While Croft explained that insurance is the study of sizeable amounts of historic performance data, he said: “We simply won’t have that here but we need to find a way not to let that get in the path of progress.”
“The need for vast amounts of data to support underwriting decisions is driven by the attitudes of our regulators. So, if we are to be the bedrock of net zero that those same regulators are telling us we have to be, then they must play their part.”
“They will have to discover the flexibility and adaptability necessary to allow them to adjust their approach to ensure markets can be formed around the necessary new products,” Croft added.
On 3 November, the UK government announced plans to require UK financial institutions and listed companies – including (re)insurers – to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards a net zero economy by 2050.
Firms will have to set out detailed public plans for how they will move to a low-carbon future by 2023.
To guard against greenwashing, a science-based ‘gold standard’ for transition plans will be drawn up by a new Transition Plan Taskforce, composed of industry and academic leaders, regulators, and civil society groups.
The new rules form part of a package of new measures announced by HM Treasury and UK chancellor Rishi Sunak at the Finance Day at COP26.
With the UK Treasury already engaged in a review of the regulatory framework in the UK, Croft said that data is a key issue that has been flagged with them as part of its input to the consultation.
“It has to be hoped that this appeal to a higher authority will have the desired effect,” he noted.
Comparing the development of motor insurance and the insurance products needed to address climate change, Croft said: “When the first motor insurance policies were being drafted as the nineteenth century turned to twentieth, the approved Lloyd’s wording for defining an automobile was ‘a ship that sails on land’.”
Croft explained that the industry may need to achieve similar levels of innovative thinking to meet the challenges of insuring the new wave of disruptive technology.
“Already I have sat in on discussions about electronic ferries and electronic airliners. If these as yet relatively untested new inventions are to come into commercial use in time for 2050, we will need to find innovative ways of insuring the risks inherent in that,” he said.
Croft highlighted that measuring and tracking progress towards net zero will also be a challenge for the London insurance market.
“Insurance brokers will be at the heart of developing ways for their clients to assess their carbon impact. And we will need to do the same ourselves in our firms,” he added.