PwC’s Domenico del Re on the steps (re)insurers can take to address ESG challenges…

Climate change

In a world where CEOs’ inboxes have arguably never been so full, it must be tempting for leaders to focus almost entirely on the immediate risks and opportunities they face. Some may assume issues like ESG, and specifically climate change, fit into the ‘longer term problem’ category and fall by the wayside. Our research suggests otherwise, with a third of global chief executives responding to PwC’s annual CEO survey telling us they are concerned about the threat climate change poses to their company in the next 12 months. 

Of those, over half are concerned climate change could inhibit their ability to sell products and services, 28 percent are worried about the impact on raising capital, 27 percent worry about its impact on innovating through technology, and 26 percent worry it could inhibit their ability to attract and keep key talent. Insurance CEOs share these concerns and face the same scrutiny on their emissions and carbon impact

Next week many of the leading players from across the insurance market will gather at the Monte Carlo Rendez-Vous, where I’m sure climate change will feature in many conversations. In fact, the appetite for fresh ideas and insights on how reinsurers should be interacting with other sectors like real estate, automotives and energy is such that we’ll be hosting interactive sessions to help executives explore how the transition to net zero is impacting different sectors, and what this means for reinsurance underwriting. 

Domenico del Re

Leaders in our industry have the added pressure – some would say opportunity, or even responsibility – of supporting other industries in their journeys. Organisations across all sectors know they need to act, but the uncertainty, risks and costs associated with taking steps on climate change are significant. 

Enabling the experimentation and building trust in the application of the technology needed to support organisations in their transition to net zero is arguably where the insurance industry can make the most decisive and impactful contribution. 

An industry that has become comfortable confronting the unknown through tackling underwriting challenges such as billion-dollar satellites, catastrophe and cyber risk and, more recently, vaccine indemnity, now finds itself being asked to step up and offer the risk cover and insight needed to support the whirlwind of current and planned climate technology innovation on which we all depend. 

Exciting breakthrough technologies are emerging at speed and scale across sectors that are critical to meeting emissions reductions targets, but realising the full potential demands available and affordable insurance cover. Without risk coverage, investors will hold back funding, businesses will delay implementation and key decarbonisation targets will be missed.  

Yes, this is a step into the unknown and a challenge arguably bigger and more important than any faced before, but let’s not forget that underwriting climate technology is also a huge growth opportunity for insurers. There are three main ways in which insurance players should act now:

  1. Work with modellers, tech players and different industries to understand the technology being created. This will help build the claims data and underwriting experience required.

  2. Pool the risk – many of the potential losses are significant and reinsurers are already looking at how to most efficiently offset the risks. Extreme flood risks are a helpful model in how to pool such high-volume losses. 

  3. Act now – for the current generation of insurance CEOs, playing their part in enabling the transition to net zero is set to be one of the defining missions of their tenures. 

Insurers may not have the same degree of scope 1 and 2 emissions as those in other sectors, but the real test is how they will directly contribute to the wider transition to a more sustainable economy. Insurers must be brave and learn from the success they’ve seen in stepping up to previously unforeseen risks. The high-volume coverage and specialist underwriting can only be delivered by our sector. The alternative is massive climate change-induced losses that no insurer can cover.

There is growing interest from reinsurers on how the transition to net zero will impact underwriting. For readers attending the Reinsurance Rendez-Vous, PwC invites you to an in-person interactive, hands-on session specifically developed to explore the risks and opportunities that the transition presents to underwriting. For more details or to attend email marina.mello@pwc.com

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