How European insurers can fight local weather change


After COP26, sustainability has taken a very high place on the company agenda. However, as insurers set their sustainability strategies for the coming year, it is important to have a holistic understanding of what the term really means – for companies and for society.

Sustainability has historically been defined by the United Nations Brundtland Commission as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. With the threat of climate change growing, insurers have a responsibility to leverage their business model and core business strengths to ensure that their customers and future generations are prepared for the ongoing effects of climate change.

Climate resilience: what insurers can do

In practice, climate change considerations can be incorporated into many aspects of the insurance model. Insurers can offer solutions to manage the impact of customer risk, consider them as a factor in the underwriting process, reward the transition to more sustainable approaches, e.g. at the base level. As we saw in recent discussions at COP26, European countries and industries are driving a move away from fossil fuels. As an insurer, we can help this by moving away from the insurance and reinsurance of coal and examining our coverage of other high-carbon industries.

Data: core competency of the insurance industry

Insurers are used to modeling and assessing potential risks. This has put the industry at the forefront when it comes to extreme weather situations due to climate change, the threats to people and the devastation they leave behind. Using digital tools like advanced aerial imagery and machine learning, we can provide a deeper understanding of risk, resulting in accessible and affordable products that respond to disasters, but also help communities prepare for the ongoing effects of climate change.

How European insurers are driving climate resistance

In July 2021, eight insurers, including AXA, Allianz, Munich Re and Zurich, joined the Net-Zero Insurance Alliance (NZIA). Convened by the United Nations, the group has committed to moving its insurance portfolios to net zero emissions by 2050, and membership is expected to grow across the broader industry. Another collaboration can be found in the cross-industry Insurance Task Force (ITF) in collaboration with Lloyd’s, which announced a Disaster Resilience Framework for Climate-Vulnerable Countries at COP26 as part of its activities for the Sustainable Markets Initiative (SMI) of Prince of Wales . . The Civil Protection Framework for Climate Vulnerable Countries highlights the possibility of combining public and private sector investments with insurance to dramatically improve disaster resilience for some of the world’s most vulnerable countries. The program will be piloted in Kenya, where insurers will work with other industries to create a more resilient agricultural sector in the drought and flood-prone country.

Insurers in Europe also promote individual sustainable goals. Swiss Re recently announced that it will phase out insurance related to power plants in OECD countries by 2030, in the rest of the world by 2040, and coverage for the world’s most carbon-intensive oil and gas companies by 2023. Lloyds has the administration agents cannot re-cover tar sands, thermal coal power plants, thermal coal mines or new exploration activities in the Arctic from early 2022 and not renew from 2030.

With regard to the provision of climate-resistant policies for customers, companies such as the Consorcio de Compensación de Seguros in Spain replace the damage caused by natural events, provided that the person or property concerned has an insurance policy. This insurance for extraordinary risks is financed by a small surcharge on each policy.

Expansion of our definition of sustainability

As our focus on sustainability in the industry intensifies and evolves, it is clear that the definition is not just about climate change or risk management. To meet the needs of the present while securing the needs for the future, we need to focus on helping the most vulnerable. For example, under-served, low-income communities are statistically more vulnerable to climate disasters, and as the population ages, we need to rethink our existing support models. In the next article in this series, I’ll explore how insurers can support these vulnerable communities and drive true sustainability now and in the future.

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Disclaimer: This content is provided for general informational purposes and is not intended to be used in lieu of advice from our professional advisors.
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