All CEOs and boards have a duty to read it if only for the obvious reason that the global P&C insurance industry is the most directly affected of all financial services by climate change.
Every year, (re)insurers pay out tens of billions of dollars to customers affected by floods, wind, heatwaves, wildfires, earthquakes and other severe weather extremes. The more volatile these vicissitudes of nature, the greater the claims bill to insurers and their reinsurers.
So, it would be self-defeating – let alone irresponsible – for insurers to simply ignore the issue altogether or, worse, to point out UN bodies have been regularly predicting imminent climate disaster for almost 50 years. Yes, the latter is unhelpful in winning over sceptics but (re)insurers can hardly afford to be sceptical in the face of rising nat cat claims bills, extreme weather and a scientific consensus around global warming (and its causes).
Indeed, The Insurer would go a step further and argue the industry has a clear moral duty to take a lead for at least two reasons. One, because it specialises in risk mitigation. Preventing and managing loss is in the industry’s DNA – it’s why buildings have fire extinguishers or sprinklers, after all. It is why drunk drivers are penalised and safe drivers rewarded. Its involvement can save lives and minimise loss.
There is a second reason – and that is the insurance industry’s vast reservoir of assets, which it invests and manages to pay for future claims. In its own report last month, “Insuring a sustainable, greener future: A roadmap for climate action”, Lloyd’s estimates this could be as high as $30trn when you also include life and pensions companies’ asset pools.
“Green finance” is critical if the global economy is to transition to a low-carbon one and governments appear much better at talking rather than doing when it comes to spending commitments (as demonstrated by the failure to deliver on a 10-year-old COP16 commitment to provide $100bn of annual finance to assist the infrastructure transition of developing economies).
It is not, therefore, unreasonable to say that the global economy – and indeed the Earth’s inhabitants – will be worse off if the global P&C industry is marginal in the effort to contain global warming and its effects.
“The P&C insurance industry has a critical role to play in the global warming challenge”
The good news is that the industry is not standing still. More and more P&C insurers are enunciating ESG policies and have sustainable strategies and green investment targets, for example. It may have taken them a while to stir into action, but they are now acting – which brings us to the point of this article.
Last month’s climate report from Lloyd’s, together with the recent news it is chairing a new task force of global industry leaders (the Sustainable Markets Initiative Insurance Task Force) convened by the Prince of Wales, may be well-intentioned but has not been universally well-received.
Indeed, a competitor of this publication painstakingly trawled through the 55-page Lloyd’s report in a bid to mock an over-reliance on in-vogue jargon as part of a wider critique which implied Lloyd’s was motivated more by corporate vanity rather than commitment to the green cause.
There were, apparently, 85 mentions of “support”, 32 mentions of “accelerate” change, eight references to “provide a platform” and 19 of being a “facilitator”, noted the article.
Its focus on “solutions” emerging from future “workshops” meant the report was more a talking shop designed to appease the climate activists who have taken a liking to protesting outside One Lime Street rather than a genuine attempt at climate leadership, suggested the Insurance Insider.
Ultimately, the article appeared to be suggesting Lloyd’s leadership should step back in its box and leave the issue of climate to the grown-ups – or at least to those who are willing to come up with highly detailed strategies rather than “vague” roadmaps.
“If you believe in working together to a greater good, then now is the time to support not sneer…”
But in The Insurer’s view this is both an ungenerous assessment and missing the point. It is missing the point because the world has not come up with the detailed answers on how to restrict global warming to 1.5°C at the same time as ensuring a healthy global economy – it requires a clear concord among all major nations and corporations (hence, the COP26 meeting in Scotland in November).
What the P&C industry does need is leadership and bodies to organise and speak with one voice to the world’s leaders and governments.
It is also ungenerous to criticise now over a lack of clarity on issues such as, say, fossil fuel underwriting. Yes, the report may have had a surfeit of woolly language but surely it is better to keep such withering assessments for when nothing has been done at the end of a new task force rather than a month in?
Ultimately, The Insurer’s view is that industry initiatives such as Lloyd’s should be welcomed and their actions supported, even if climate activists regard them as insincere or insufficient (or both). As we note above, the P&C insurance industry has a critical role to play in the global warming challenge. If you believe in working together to a greater good, then now is the time to support not sneer…
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