- Global protection gap for natural disasters at 69%
- Industry underselling role in risk financing
- Need to use Cop-26 as opportunity to “elevate” industry’s role in risk managing and mitigating for climate change
- Private and public sector collaboration is key
- Industry must be cautious about over promising and under delivering on climate commitments
This is the stark warning from Richard Dudley, Aon’s newly appointed global head of climate Strategy, who added that research also suggests the cost is climbing by an average of 5 percent per year.
“So what you often read and hear about is the protection gap which our analysis suggests is now at about 69 percent which is an extraordinary percentage”, remarks Dudley in our first Insurer TV interview series to coincide with the COP-26 event in Glasgow, Scotland.
But Dudley also praises the industry for the steps it has made in recent years, adding it is now: “well positioned to do more to help close the protection gap”; and in collaboration with the public sector, will have a much better chance of succeeding.
“[Aon] has been heavily engaged in some work that’s been done through the Sustainable Markets Initiative at Lloyds, ClimateWise and there are a lot of other forums like the International Development Forum (IDF) to address those challenges in the developing world, but we’re also trying to drive change in the regulatory space,” said Dudley.
“One of the things we dramatically undersell as an industry is our role in risk financing as opposed to just transfer and when you think through some of the challenges the transitioning economies are to face, there is an enormous role for us to play here,” he added.
Speaking alongside Dudley, Dominic Christian, global chairman of reinsurance solutions at Aon, said the industry is “doing more than it thinks it is” when it comes to the role it plays in both risk managing and mitigating climate change.
Referring to the latest ClimateWise report which was published in June this year and which looks at climate product innovation, Christian said the research demonstrated the industry is doing “far more” in this space than it perhaps realises.
“The challenge is that we don’t really completely understand the products we’re selling or what each other is selling or developing and there are a huge number of them,” he said.
ClimateWise will be distributing its latest report on Wednesday (3 November) at the UN Climate Change Conference which is currently taking place in Glasgow.
But other reports which showcase more of what the industry is already doing about climate change from a risk mitigation point of view are very welcome.
Already, the Sustainable Markets Initiative, led by John Neal, CEO of Lloyd’s of London and the initiatives driven by the IDF are providing good examples, but Christian said it’s imperative to “elevate the industry’s voice”.
“We have to make sure that insurance has a far better seat in the hierarchy of help on this issue than it has today,” explained Christian.
Having just moved into a new role to specifically address climate change, Dudley acknowledges that while the industry will be able to provide - both directly and indirectly - greater levels of capital to enable and support clients in the development of new, sustainable technologies and to help speed up the transition of existing products and technologies in some industries, “collaboration is key”.
Dudley said: “This is something that is very difficult for any of us to achieve on our own and it’s also very difficult to think of it in compartments like insurance and reinsurance. I think we need to think of it across the whole of that risk landscape which is really important.”
Dudley also believes the London Market is very well positioned to drive momentum forward.
“I really do feel that the London market is going to play a big role in this and has a huge opportunity to do a lot of work in this space because we have so much expertise here,”he notes.
We are attracting more capital into our industry and we have a proven ability to collaborate with one another - no one firm can handle this all on their own, so there’s an element of how we really pool altogether our levels of expertise while still allowing plenty of differentiation competition amongst the marketplace in all of that and I think there’s a there’s definitely a route forward to do that,” said Dudley.
But of course, the public sector will play a role and it is over the next couple of weeks as politicians and business leaders meet, we hope to get a better understanding of what this role is.
Dudley adds: “To actually address this properly, it’s very difficult to do it as a private sector and we have to talk with the public sector whether that’s with governments or regulators.”
“That will be important because collaboration is critical here - both across the industry and between the public and the private sectors. We’ve got to better utilise some of the frameworks we’ve already got and demonstrate the very strong value proposition in our existing market here in London.
“There is a real opportunity for us to be at the forefront of shaping how we can drive the opportunity in collaboration with the government and the regulators, because we need them to enable us to do that,” he explained.
The “greatest role”
According to Christian, the single issue where insurance can play the greatest role is “of any of the great risks of the age” is climate.
“We have an intense risk understanding, we are risk managers, we are the financial first responders and I think the government is very aware of that,” said Christian.
“We’ve probably been a little bit too insurance talking to insurance about climate, perhaps too much in the past, but I think we’re getting much more external and we can show this at COP26.”
However, the Aon duo end on a word of caution over the danger of empty promises.
“I think we have to be careful that we don’t make commitments that we then don’t execute on because that is the one area where that becomes very obvious very quickly,” said Dudley. There are reams of organisations across the world looking for exactly that,” he concludes.