Climate change: is there a moral obligation for the re/insurance industry?
Is there a moral responsibility for the re/insurance industry to address climate change? And how is the industry responding to this issue? These are contentious questions but ones the industry is already grappling with. At the same time, could there be more collaboration between the public and private sectors to address this global challenge?
These were some of the main talking points from a panel discussion titled “What climate change means for re/insurers” during which experts debated the moral obligations for the industry.
The discussion took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.
The event featured Laurent Montador, deputy chief executive officer at CCR Re; Patricia Kwan, director, Financial Services Ratings, North America Insurance at S&P; David McNeil, associate director, Sustainable Finance at Fitch Ratings; and Raphael Papin, loss prevention engineer specialising in climate change at HDI Global France.
Montador said that the impact of climate change is opening new channels in the industry. “Using risk transfer to achieve climate change resilience is possible, but there has to be give and take. Also, the possibility of saving on insurance costs may incentivise clients and the public sector to invest in more measures to build resilience in the face of climate change.”
McNeil said that there needs to be some form of consistency in the industry when it comes to climate change risk, with a strong emphasis on transparency. “There will need to be greater engagement across environmental, social, and corporate governance (ESG) factors in risk mitigation, which may result in a greater pooling of risks across different stakeholders for a sustainable long-term solution.”
“The industry will be on a path towards more ESG-focused engagement.” Raphael Papin, HDI Global France
For Kwan, loss trends are a critical factor which requires closer examination by the industry at large. “The re/insurance industry may need to look at limiting protection coverage for certain areas and regions, depending on climate change vulnerability.”
Climate change remains an enormous threat to the global industry, said Papin, adding that re/insurers must make a concerted effort to fully understand these sweeping impacts.
“This will require the consistent collection of data. There is also an opportunity for the industry to work in collaboration, which may seem like a challenge at first, but it will be important in achieving a greater understanding and creating new opportunities in risk mitigation.”
Papin continued: “The industry has a lot to gain from this and it will open up new opportunities, not only to acquire a more comprehensive understanding but also to serve clients more effectively.
“The industry will be on a path towards more ESG-focused engagement and this complex scenario will open up further diversification and more opportunities for underwriters.”
A shared responsibility
McNeil agrees that a significant portion of the re/insurance industry is looking at ESG. “Climate change is significant for re/insurers who are carefully reviewing their current portfolios to make the industry more resilient and sustainable,” he said.
However, Montador added that climate change is not simply the responsibility of the re/insurance industry. There must be greater input from governmental stakeholders as well.
“The re/insurance industry may need to look at limiting protection coverage for certain areas and regions, depending on climate change vulnerability.” Patricia Kwan, S&P
“While the industry can redesign its products and look again at portfolios, this is not a new challenge and there is also a shared responsibility, which all industries and governments must consider.
“The industry may have a moral responsibility to clients and government to create awareness, but climate change remains a two-way discussion. The insurance industry can be targeted by regulators, although responsibility should be shared with governments as well.
“The industry requires support, and this may also require better understanding of the industry by clients,” he said.
The panel agreed that while it may be necessary to adopt new structures, it would be necessary for industry resilience as well as for mitigating relevant risks.
Kwan said that this may impact the way underwriters review underwriting policies in future and added that collaboration across stakeholders was vital to gain a far more realistic perspective.
“Strong ESG credentials do not necessarily point to strong credit worthiness, and weak ESG credentials do not point to weak credit worthiness,” she concluded.
To view the full Re/insurance Lounge session click here.
