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Climate change risk now better managed by insurers

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Climate change risk now better managed by insurers

Insurers and reinsurers are becoming more involved in managing risks related to climate change, though more work needs to be done, recent research concludes.

In addition, the outcome of the recent U.N. Climate Change Conference in Durban, South Africa, was disappointing for the industry, according to a leading reinsurer.

In a recent report on members of ClimateWise, a group of insurers focused on reducing the effects of climate change, PricewaterhouseCoopers L.L.P. found that insurers have a strong commitment to addressing the issue.

The report found that the group's 26 insurer members had an 88% compliance rate with the group's six principles, which are to lead in risk analysis, inform public policymaking, support climate change awareness among customers, incorporate climate change into investment strategies, reduce the environmental impact of their businesses, and report and be accountable.

PwC said the insurers demonstrate a good level of disclosure related to their governance structures to address climate change risks and, for many, managing climate change risk is a board-level responsibility.

The study found that the members had a 96% compliance rate with the principle to “lead in risk analysis,” 92% compliance with the goal to reduce the environmental impact of the business, 91% compliance with the aim to support climate awareness among customers, 90% compliance with the aim to report and be accountable and an 89% compliance rate with the principle to inform public policymaking.

However, the principle to “incorporate climate change into investment decisions” remains an area of “relative underperformance,” according to the report, with only a 72% compliance rate.

“One area where we have seen very little progress, and maybe even a step back, is the way insurers are thinking about the impact of climate change on the asset side of their investment portfolios,” John Williams, a partner in PwC's sustainability team in London, said in a statement.

“Fewer insurers are also considering the impact on company performance and shareholder value, and incorporating this information” into their investment decision making, he added.

Meanwhile, the Intergovernmental Panel on Climate Change report, released late last year, underscored the need for more preparedness for a climate-related disaster.

According to the report, while the risks associated with climate change cannot fully be eliminated, “adaptation and mitigation can complement each other and together can significantly reduce the risks of climate change.”

“The human and economic costs of severe weather are escalating and the IPCC report is another important reminder of the need to reverse this trend,” said Mark Way, New York-based head of sustainable development at Swiss Re America, a unit of Swiss Re Ltd.

“Swiss Re believes that effective adaptation measures can significantly improve society's resilience to climate risk, and insurance has an important role to play in this regard,” he added.

As for the December climate summit, Munich Reinsurance Co. said the South Africa meeting was a disappointment from the insurance industry's point of view because the talks failed to produce a binding agreement on global climate protection.

The fact that “no substantial progress was made in developing specific adaptation projects is also very disappointing,” said Peter Höppe, Munich-based head of geo risk research at Munich Re.

“Increasingly severe weather extremes resulting from climate change are having an especially negative impact on developing countries, which are unable to protect themselves adequately, but have done hardly anything to contribute to global warming,” he said.