Speaking exclusively to The Insurer TV, Eckert said increased pressure will come from both regulators and asset managers over the reporting of ‘Scope 3’ emissions – those generated through underwriting or investment activities.
“Methodology on that is really a work in progress at the moment and it’s been described to me as more of an art than a science at the current time,” Eckert said.
“Trying to measure the carbon intensity of an underwriting portfolio is incredibly difficult. If you have an architect who is designing concrete buildings, how do you score that?”
Eckert said he expected a universal approach to emerge over the next two to three years.
“I’m much more interested in getting that right than I am about generating additional workstreams within our own industry,” he said.
He said underwriters had an important role to play in this process, and could help ensure the process was driven by management and the perception of risk rather than through a rules-based culture.
“For me it is about evaluating risk. Given what we know about what’s going on in the world today, you should be asking that client all the right questions,” he said.
If as an industry the questions asked as part of the underwriting process are right, Eckert said the need for a regulator to appear and start to try and impose rules and regulations would be reduced.
“Rules and regulations are needed if someone is not doing the right thing. In this case, I think the opportunity now is to make sure that the way we underwrite reflects the transition.”
“If you are in the energy market or you are insuring assets, you will as an underwriter be needing to ask all the right questions.”
He also added his voice to those cautioning against alienating clients through excluding cover.
“I heard a very interesting comment from one of the major oil companies recently which was don’t make us sell all our fossil fuel assets because they will end up in the hands of people that may care less than us.
“Some of those big oil companies now are very well-regulated businesses and they’re deeply engaged in the transition. If they start disposing of all their fossil fuel activities, they will end up in the hands of people who will have much less regard for environmental impact.”
During the interview Eckert also reiterated his view that the transition towards net zero presented a huge opportunity for the sector.
“You will see a massive transfer of investment and assets from the old economy into a new one. During that transition, you will see change occur on a scale probably not seen since the Industrial Revolution.
“That will creates vast amounts of new construction and huge amounts of decommissioning of old industrial sites which in itself, with the environmental liabilities involved, is a huge business. There are also opportunities presented by new technologies,” he said.
“Anyone thinking strategically about where they want to be in 10 years time wouldn’t be going into the market to hire a new coal mining team. You’d be going into the market to hire someone who specialised in renewable energies and renewables are just the tip of the iceberg.”
Eckert said there was also now a “real focus” in the industry around addressing the protection gap and building resilience in vulnerable countries.
“Parametric products are much more prevalent and that’s a way of measuring and insuring risks that on the face of it are very hard to insure,” he said.
“Insurers and the world’s biggest broking houses are looking at trying to get coverages put in place for regions of the world that are in the firing line on climate change.
“Ten years ago, this wasn’t happening and you wouldn’t have heard these discussions occurring. There are lots of initiatives, with people looking at public-private partnerships and the way risk is managed – that presents an opportunity for the industry.”