While public discourse on the outcomes from COP26 has seen mixed views around the relative success of the event, the talks did play an important role in bringing to the forefront the growing interest, appetite and commitment around climate issues from the insurance sector.
The event, as Browne Jacobson’s Jeremy Irving commented during The Insurer’s post-COP26 roundtable, served as a shop window highlighting the significance of climate change, the role of carbon within global economies and the part insurance can play in helping address these challenges.
Irving said his key takeaway from the event was that it remains “all to play for”.
Jessica Turner, managing director, catastrophe advisory, international at Guy Carpenter, said there were several positive takeaways that came out of the event.
“Some statements, such as India stating its net zero by 2070 commitment, were reported by the media as a disappointment.
“However, scientists that I follow saw this as quite positive as buried within there were some pretty strong commitments to achieve by 2030, for example to generate half of their energy through renewables.
“For me, this was the COP where the financial services sector showed up in a big way. Mark Carney’s announcement of the Glasgow Financial Alliance for Net Zero saw $130trn of private capital directed towards decarbonisation.
“There was also the Net-Zero Insurance Alliance, which saw Lloyd’s join alongside 14 other members. I felt like there was a real momentum, at least from our industry, which I hope continues into the future.”
Isabelle Santenac, EY’s global insurance leader, said the event highlighted the challenges facing governments when making bold decisions around climate change and the increased pressure this will place on the private sector to lead on the road towards decarbonisation.
Fitch senior director Jeffrey Mohrenweiser said there were increasing signs that the insurance industry was coming together on this drive.
“We are starting to gather data and form alliances – the insurance industry is really starting to get behind this and I believe it is just a matter of time before insurers really become enablers of decarbonisation,” he said.
Swiss Re Institute’s head of macro strategy, Patrick Saner, said the event created more urgency with new net-zero targets and agreements on coal, methane and deforestation.
“These are absolutely welcome and necessary, but we also need to be realistic that they’re not enough. It seems like policymakers as well as businesses have the vision but we need to go from vision to execution and ultimately we need to mobilise more systemic change and decisively advance the green transition to really move the dial,” he said.
Saner added that the challenge now was to put pledges into action and build concrete roadmaps to advance the low-carbon transition.
The transition opportunity
The decarbonisation process will require the development of new technologies and scaling up of renewable energy sources that ultimately present a huge growth opportunity for the insurance sector.
“I have companies coming into our offices every week asking about new business that they could write,” revealed Guy Carpenter’s Turner. “The renewables sector as well as areas such as sustainable construction, battery storage, electric cars – there is a lot of new business to get into and insurance can help get those projects off the ground.”
Saner said the insurance industry, as the third-largest long-term asset pool, had a vital role to play in financing the low-carbon transition.
“Carbon-capturing technology and other new sectors need some really fundamental and large-scale capital to be able to attract the talent to be able to set up research and development operations and get things off the ground very, very quickly,” he said.
“We also have the risk expertise, analytics and risk transfer potential on the underwriting side. As an industry, we’re right in the middle of it because we can serve both the asset side and perhaps even more so the underwriting side by de-risking the projects.
“A lot of these projects are uncharted in many ways – the industry has a lot to contribute through its risk transfer and analytics experience.”
EY’s Santenac said there was also potential for the industry to direct more of its investment towards building more resilient infrastructure.
“For vulnerable communities, there are some interesting initiatives being developed around microinsurance and how to ensure that those communities have access at an affordable price to some protection.
“Partnerships between banks and insurers to try to bundle some products together are also welcome, and initiatives in some countries are moving in that direction.”
Saner said the industry has a huge responsibility to strengthen resilience but can’t do it on its own, with a need to work with the public sector and other industries.
“We also need to have more focus on sustainability as a whole – not only on the low-carbon transition but also around nature-based solutions and the cost and value of biodiversity and natural ecosystems.”
Irving said his hopes for 2022 centre around a broader recognition of what a just transition should look like and a focus on the rights of people in the context of ESG responsibilities.
Saner believes 2022 requires a focus on execution and concrete action from governments and the private sector to make good on promises that have been made.
Guy Carpenter’s Turner believes the development of clear standards is the most important goal for 2022 to help insurers understand what emissions there are within their portfolios, while Mohrenweiser believes the big challenge is to get the right people in place who understand climate change.
The next 12 months will be a critical period for the industry to advance its progress on these critical issues.