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World NewsClimate biggest single opportunity for insurance: Lloyd's CEO

Climate biggest single opportunity for insurance: Lloyd’s CEO

LONDON — Climate is the “ultimate systemic risk” and represents “the biggest single opportunity the insurance industry has ever seen,” in line with the CEO of the centuries-old insurance coverage market Lloyd’s.

In an interview with CNBC, John Neal, who heads up the British firm, tried to color an image of how his sector would function going ahead.

“We think of Covid as systemic risk — climate is the ultimate systemic risk, so this is our chance to show businesses, communities and even governments how we can help,” Neal, who was talking on the COP26 local weather change convention in Glasgow, Scotland, mentioned final week.   

From floods and rising temperatures to chilly snaps, the fallout from climate-related occasions already impacts the insurance coverage business in a lot of methods.

The Association of British Insurers says an excessive freeze within the U.Ok. throughout 2018 led to payouts for burst pipes totaling £194 million (round $263.16 million) throughout a interval of three months. In the identical yr, an excessive heatwave noticed over 10,000 properties within the U.Ok. declare for harm created by subsidence. This exceeded £64 million, in line with the ABI. 

Alongside payouts, the ABI factors to a different potential hurdle. “There is a risk that, if there is a disorderly transition to a low-carbon economy, the value of many of the assets in which insurers invest will fall with little warning,” it says.

The ABI argues the above additionally represents an opportunity for corporations that make an early shift to “more sustainable assets.”

While there could also be alternatives, there are additionally challenges, as highlighted by a wide-ranging report local weather change and insurance coverage from Deloitte.

Preparedness, it could seem, is vital. Among different issues, the Deloitte report’s government abstract describes many insurers as nonetheless having “some way to go in getting to grips with how climate change will affect their business models in the medium to long term.”

Climate-focused litigation is one other points. Last week, a publication from the Insure Our Future marketing campaign mentioned insurers have been “waking up to the growing risk that they may have to pay for the legal costs and damages of fossil fuel companies targeted by climate lawsuits.”

ESG and turning the screw

Ideas associated to ESG — environmental, social and governance — have develop into a sizzling matter lately, with a variety of corporations trying to spice up their credentials by creating enterprise practices that chime with ESG-linked standards. The insurance coverage sector isn’t any completely different.

Speaking to CNBC’s Steve Sedgwick at COP26 final week, Christian Mumenthaler, who’s CEO of reinsurance agency Swiss Re, mentioned: “In 2017, we switched the whole 100 billion asset base to ESG standards … we stay invested in every industry, but we pick only the 50% best in terms of ESG.”

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Mumenthaler was requested if this included coal. “It includes everything on the investment side,” he replied. “There’s certain things we have excluded, so if you’re a pure coal company, that’s excluded.”

“But it’s like turning the screw over time, because we say that the carbon emission footprint of this asset portfolio has to go down to zero by 2050,” he added.

In relation to underwriting, Mumenthaler provided up the identical concept of turning the screw. “We don’t finance new coal power plants, we’ve told people we’re going to phase out existing ones: 2030 in rich countries, 2040 in poor countries.”

He emphasised the significance of making a dialogue, of speaking to CEOs as a way to “encourage them to join the movement.”  

Data and the lengthy sport

Back at Lloyd’s, Neal was requested about pricing local weather danger when offering insurance coverage and if the instruments have been accessible to try this. His response emphasised the significance of gathering information over a sustained time frame.

“We’ve got 25 years of high quality weather data,” he mentioned. “The frequency and severity of … convective storms, right the way up to hurricane related activity we see in the U.S. – we’ve got amazing data on that,” he went on so as to add.  

“The advantage we have is unlike, say, life assurers where they’re making long, long-term decisions, we are repricing our products every 12 months,” he mentioned.

“So in real time, we’re managing weather and trying to understand weather and then trying to extrapolate that through a climate lens.”

Looking forward, Neal was bullish about his sector’s prospects going ahead. “The insurance industry’s got $35 trillion under management, so we’re part of the solution, if you like, of putting our assets at play to support transition,” he mentioned.

He concluded by saying: “I genuinely, genuinely think … climate is the biggest single opportunity the insurance industry has ever seen.”

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