Insurers Facing ‘Decisive Moment’ In Climate Change Effort, Speaker Says

Does the insurance industry have a role in supporting the world’s transition to a net-zero-carbon economy? And if so, what is it?

That seemingly disparate topic was the focus of the National African-American Insurance Association’s annual kickoff event this month and it brought a host of experts who outlined their ideas of how insurers can help accelerate the world’s transformation to a sustainable future.

“As we truly face a decisive moment in our fight against climate change, our industry has the opportunity and the responsibility to use our expertise that has been gathered over 300 years to facilitate action,” said the event’s moderator Rebekah Clement, sustainability director for Lloyd’s. “And climate change represents an absolutely extraordinary opportunity for our industry to step up and support our customers through the various multisector transitions over the years and decades ahead. We have a vital role to play in underpinning and enabling urgent changes needed to achieve net-zero by 2050.”

That sentiment wasn’t exactly unanimous at the start of NAAIA’s kickoff. Clement began by asking attendees whether they believe the insurance industry indeed had any role in affecting climate change and reaching net-zero emissions. About 51% said it had a vital role while 41% said its role was not as great as that of the investment and banking industries. Eight percent said the industry has no role or a minor one in the climate change issue.

“Hopefully, by the end of today, you'll be thinking perhaps a little bit differently,” Clement said in reviewing the results of the live poll.

It’s likely they were. Or at the least, some eyes were probably opened about the industry’s place in the issue as three panelists walked through the various ways the insurance industry can contribute, mostly in the context of ESG risk. ESG - or environmental, social and governance standards – is impacting all corporations, particularly insurance policyholders and companies.

The ESG agenda and risk assessment have become increasingly important for the financial services sector, including insurers. The COVID-19 pandemic has accelerated the industry’s activity in this area as underwriting, investing and risk management decisions are more frequently being made with regard to how they will affect a company’s ESG score, which is compiled by several rating agencies.

Admittedly, the U.S. insurance industry lags foreign insurers in this area and that also became a focus of the NAAIA’s presentation.

In a nutshell, the NAAIA event addressed these three points:

• How can the global insurance industry - which has more than $30 trillion in assets under management - direct more capital toward climate-positive solutions, while better integrating ESG considerations?
• How can the industry work with governments and investors to provide financial structures to support disaster recovery and resilience, and translate those efforts into developing markets?
• How can insurers innovate new products and solutions that support the transition to decarbonizing and producing more sustainable business models?

'A Lot Of Hype'

“There's a lot of hype around this and ESG is still something that people are getting their heads wrapped around what it even means,” said Keith Trivitt, head of commercial and strategic partnerships for AXIS Insurance. “But we are starting to see that investments are matching up against that hype.

"So now it is more on the proactive front foot aspect of, how do we start to see this as a business opportunity? How are we ensuring that we are helping our brokers and our clients address these emerging risks within their business as they start to work toward achieving their own net-zero initiatives around this?”

Trivitt noted that the insurance industry historically has been in front of and helped drive societal issues such as fire codes, seatbelt use and mitigating cyber risk.

“It’s part of our DNA of helping to address these kinds of emerging systemic risks within society,” he said.

Meredith Jones, a partner at Aon, said her company decided early to integrate ESG into its business decisions.

“Whether it was on the investment side of the business, the reinsurance side of the business, human capital, mergers and acquisitions, it plays a role in all of those,” she said.

Aon created an ESG think tank to insure clients had a full suite of solutions that incorporated environmental, social and governance standards.

“I think it is an opportunity to do good and do well,” she said. “If you look at it from an investment standpoint, if you are taking environmental, social and governance risks into consideration, then you're actually going to have better returns, you're going to have less volatility on the one side that's doing well.”

Conversely, she said as companies work with firms that are lowering their carbon footprint or improving workplace safety, or improving diversity, equity and inclusion, that's doing good.

“It doesn't require that people get aligned around a sense of values,” she added. “It really is centered around risks and opportunities. But at the same time, the collateral benefits of managing those risks and opportunities create positive ripple effects for everybody.”

Jatin Sharma, a managing partner at NARDAC, a London-based insurance broker, said he was on the climate change and ESG bandwagon ahead of the curve.

“I was very fortunate early in my career to meet people who were climate refugees, and see the direct impact that climate change is having on the most vulnerable people in society,” he said.  “So, part of what we do is find solutions for challenging sectors like renewable energy, battery, energy, storage, hydrogen - you know, these big, big capital projects that ultimately reduce the carbon footprint of the power industry. If you're somebody who's passionate about learning new skills, and want to apply that to an industry that desperately needs more talents and is focused on the environmental sector, insurance is definitely the way to go.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].