As the world’s leaders conclude their two-week summit in Scotland it is good to see some of the leadership in the insurance industry involved in the most critical issue facing all of us today. Many in the insurance industry are working positively to promote policies that will help mitigate climate change – or at least don’t add to the problem – such as new ESG guidelines for the company, looking at the impact of placing climate risks in their portfolios, new modeling, and reassessing where to invest the huge assets the insurance industry has under management. Reinsurers rank climate change as the top risk facing the global insurance industry, according to PwC’s latest survey.
Climate policy is a risk management system, and the industry needs to provide a comprehensive vision for risk sharing going forward. There are many complex issues to be worked out for both the insurers and their insured for sure, however, a cleared-eyed approach by all parties can get us there.
Innovations like from AXA XL which has launched a tool that maps current and future flood hazards resulting from climate change and integrates the protective benefits of coastal ecosystems into insurance risk models, is a great example of where the industry can lead.
There is a theory in the risk management world, however, that insurance can be seen as a barrier to the kind of innovation needed to tackle the hard nut that is climate change. Providing P&C insurance, or D&O insurance, to a client without concern for the long-term impacts climate change can bring can remove the responsibility from the clients. Adding to this, innovative changes to infrastructure, along with the recent technologies used to build resilience, can be hard to insure as they rarely have claims history. This makes it difficult for the insurance sector to price the risk.
I think the basic principle behind captive insurance will accelerate solutions. With captives, organizations take direct responsibility for their risks – they now own it. The data on how to mitigate climate risk comes from their captive which allows them to be more focused on pursuing resilience at all levels. No longer is there a large, anonymous insurance company obscuring leaders from understanding and acting to better protect their own properties, employees, supply chains, and ultimately shareholders. And captives are innovative. They have the ability to take specific risks for an organization that might be looking at pioneering ways to use new technologies to protect from the impacts of climate change.
I remain hopeful that with a comprehensive and coordinated effort from all facets of society and industry we can turn the corner on climate change. Captive insurance will be part of that solution.
Stay well and see you soon!