In August 2018, Swedish schoolgirl Greta Thunberg staged a ‘School Strike for Climate’ in front of the Swedish Parliament. Since then, she has become an international household name, spoken in front of the UN and catapulted the subject of climate change to the top of the global political agenda.
Amid this maelstrom of international activity, the insurance industry has found itself thrust to the forefront of dealing with the impact of climate change. For a start, the frequency and severity of adverse weather events is on the rise, forcing insurers to pay out millions to claimants for repair work. For example, 2018’s Beast from the East led to payouts of £194 million for burst pipes over just three months, while the summer heatwave that same year resulted in £64 million in claims for subsidence damage. There are mounting concerns that, as the risk relating to climate events increases, raising premiums will be the only way for insurers to mitigate it in a way that is sustainable for their business – potentially rendering insurance unaffordable for the majority of the population.
Calls for sustainable investment
The UK’s insurance industry is the largest in Europe and the third biggest in the world, holding over £1.8 trillion in invested assets. Shockingly, however, only 1.2% of assets under management by UK insurers are currently invested in sustainable initiatives such as wind farms or solar power. What’s more, according to pressure group Unfriend Coal, the major US and European insurance firms have over $600 billion currently invested in fossil fuels. The industry is under huge pressure to divert funds away from so-called ‘dirty’ assets and invest them instead in Environmental, Social and Governance (ESG) initiatives. And, with insurance providers currently managing investments totalling around 25% of the UK’s net worth, they have enormous power to instigate the kind of change that campaigners are desperately calling for.
To insure, or not to insure?
According to research from Climate Analytics, no more coal projects can be built if the zero carbon objectives laid out in the Paris Agreement are to be successfully met. And yet, there are 1,600 projects currently in planning across the globe – all of which will have to be insured. Insurers are therefore in a unique position to dictate which projects go ahead in future by refusing to cover those that rely on unsustainable energy sources. For example, major insurer Allianz announced last year that it would be pulling its coverage from single coal-fired power plants and coal mines with immediate effect. On the other hand, though, the firm will continue to provide policies to businesses that generate power through fossil fuels until 2040. This has led to campaigners protesting that Allianz’s bold statements – and those of other insurers – aren’t doing enough to bring about the kind of rapid change that is needed.
The power to bring about change
As we have shown, insurers have a huge role to play in the fight against global warming – a role many are already taking to with enthusiasm. For example, the industry has collaborated with the government to create the Floor Re initiative, through which people who are considered ‘uninsurable’ due to their area’s high flood risk can access more affordable flood cover. On a global level, major insurance associations and firms came together in 2007 to establish ClimateWise, a global network of insurers that supports the industry to better respond to the risks and opportunities presented by climate change, as well as raising climate awareness among policymakers, the general public and clients.
For insurers, the pressure is on, and will only get more intense as the urgency of the battle against global warming increases. While it can’t be denied that positive steps have already been taken, the industry will have to respond much faster in future as calls for action from campaigners, politicians and the general public grow louder.