Insurance has a leading role to play in addressing climate emergency, SIRC 2019 delegates hear

The re/insurance industry is uniquely placed to address risks associated with climate change, having been assessing these types of risks for decades. However, the message delivered at the Winds of Change panel discussion the Singapore International Reinsurance Conference yesterday was a stark one: climate change is not so much a business opportunity as a threat to civilisation, and re/insurance companies that still cover the coal industry need to rapidly reassess their position.

Climate scientist Benjamin Horton, chair of the Asian School of the Environment at Nanyang Technological University, put the point succinctly: “Climate change is real and the difference between low emissions and high emissions is not the end of your companies or a lowering of your bottom line: it’s the end of civilisation.

“That’s the reality, so this industry needs to make sure we keep to the Paris Agreement. You cannot insure coal. If you don’t want to do it for the bottom line, do it for your children, do it for society.

“That’s why I’m here as a climate scientist, to get this message across.”
Rowan Douglas, CEO, capital, science and policy practice at Willis Towers Watson, emphasised that while the panel discussion had centred around the challenges in developing countries, the issue is global, and the role of the re/insurance industry is key.

“In London I have lost track of the number of banks that have knocked on our door requiring climate risk disclosure assessments in the wake of the Task Force on Climate-related Financial Disclosures requirements
“In the UK by 2022 all large companies will have undertaken a formal climate risk disclosure for their physical transition and liability risk, looking at the current risk and into the future,” he said.

“The financial system in general and businesses are going to have to quantify and disclose their exposure to climate risk in a much more rigorous way and they are going to embrace insurance-based analytics to do it.

“Meanwhile, insurers who are already doing a bit of that will be required to go even further.”

Douglas added that the recent shift from talking about “global warming” to talking about “the climate emergency” is a very significant one.

“The road to 2100 is literally an emergency,” he said.

“The powers that be recognise that is the case. For the first time in history and this is being discussed at central bank level they are saying that if we don’t act in the next five to 10 years, that’s it.”

Better models
He said that modelling is becoming more refined, producing data that can be ingested and consumed into systems to give a much more explicit view of an individual company’s risk or the risks of particular properties and that information will have to enter the main financial system.

“People are recognising that at some point in a decade which people now feel will be called the ‘climate decade’, there will be a moment where people realise that unless something is done radically, the future for countries and companies will not be bright and there will be a disorderly transition response,” Douglas explained.

He said that re/insurers need to be at the very heart of trying to organise an orderly management of risk in both developed and developing economies.

“The word will have nowhere else to go because we are the only sector that has that understanding,” he said.

“It’s a huge opportunity and on a purely parochial level I don’t want companies that need climate risk analysis going off to other consulting companies that aren’t to do with insurance. That’s our business.”

He added that even if there is a radical change in the next 10 years, the industry will still face enormous levels of loss and that the best way forward will involve collaboration between the industry and governments.

“We need to redouble our efforts to engage with governments and institutions to outline what is economically sustainable from a capital point of view, and societies have to work out how to build the necessary resilience financial and physical including decisions around issues such as land use and where people are going to live,” he said.

“This needs to happen because within 10 years this will be an issue of the biggest political and policy priority.”