As the recent Bonn intersessional talks broke up with little progress on key issues, Harjeet Singh, global lead on climate change at Action Aid, expressed disappointment over discussions on loss and damage. “Insurance is not a ‘silver bullet’ to tackle loss and damage,” he told Carbon Brief. “For example, it doesn’t work for slow-onset events such as sea level rise, where some damage is certain.”
Though Singh makes an excellent point, nonetheless the insurance sector is showing quite a bit of energy and imagination on both the regulatory and the product innovation fronts, in support of the Paris agreement and wider sustainability goals. We share a short round-up of some recent developments below.
Adapting to Uncertainty
More of an insight than news, perhaps, a recent roundtable at the Royal Society in London heard from Michael Morecroft of Natural England that “although climate shocks are increasingly frequent and intense, they are no less difficult to forecast,” and that “when we’re adapting to climate change, we’re not adapting to a new stable state, we’re adapting to uncertainty.” That said, data improvements mean that the UK’s Department for International Development “is increasingly investing in forecast-based financing, which involves releasing assistance to communities according to pre-agreed triggers – such as weather predictions – rather than waiting for torrential rains or dry spells to cause havoc,” a DFID representative told the roundtable.
DFID supports the London Centre for Global Disaster Protection, whose objectives include “investing in data, science and research needed to design systems that work for the poorest.” It also enables risk analysis and financial analytics to help developing countries manage risk, and “expert, neutral advice [to] design new, innovative financial tools – including insurance – that are right for disaster planning and deliver the most benefit for the poorest when disaster strikes.”
Technical assistance Goes Virtual
Perhaps assisting such innovations over time will be what’s claimed as “the first ever online database on climate risk,” launched by the Global Index Insurance Facility, in partnership with the Munich insurance company and the German government. The database “shares the experiences of numerous international organizations in the field of risk transfer and insurance solutions to climate risk management,” with the objective of “[contributing] to successful and sustainable climate risk insurance projects in climate-vulnerable countries.” The database houses factsheets, technical documents on topics such as enabling environments, videos, and reports, and is open both for access to content and contributing to it.
Also online and adding to what looks like a growing suite of technical assistance tools is RiskTalk, an “interactive exchange community on climate change risk transfer” that directs questions on “developing and implementing effective risk management strategies” to a pool of experts. RiskTalk is part of the Insuresilience initiative, again anchor-funded by the German government.
(An interesting sidenote to the emerging public/private facilities in different financial sectors may be the strength of these sectors in different countries, with the fact that Germany and German-speaking Switzerland have a globally important insurance sector presumably being a driver for their majoring in this space. The UK is seeking to lead the way on green finance, though as the recent inaugural conference of the Northern European Partnership for Sustainable Finance heard (see Session III), there are now quite a few national and sub-national sustainable finance hubs emerging in northern Europe.
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Not strictly insurance related, but an example of how new ‘big data’ sources can contribute to the understanding of vulnerable populations, the UN is rolling out a partnership with Seattle-based Tableau Software to create real-time data visualisation tools, starting with food insecurity. In Yemen, for example, the World Food Programme has been using mobile phone calls and SMS surveys to collect assessment data at the most local level, connecting with over 3,000 households a month. Similar programs in Syria and northeast Nigeria are also underway. (For non-profits, the Tableau Foundation offers grants, training and free licences.)
Ocean’s a Focus for Innovation
Given that modern insurance really started in the maritime trade, it’s perhaps not surprising that some of the most interesting product developments are in ‘blue’ insurance. We have previously highlighted the work of The Nature Conservancy in this area, but several others are covered in a recent piece in Marine Ecosystems and Management. These include using lower insurance premiums to encourage municipalities to proactively restore wetlands; livelihood protection insurance for small-scale fishermen in the Caribbean; and using vessel insurance (or rather, withdrawing it) to combat illegal fishing. The article also usefully summarises why insurance and insurers can be powerful tools/agents for change (see box).
Meanwhile, a group of corporate, environmental and NGO participants have recently unveiled a set of 14 ‘Sustainable Blue Economy Finance Principles’ intended to guide the path to sustainable ocean development, which has an economic value of some $2.5 trillion annually.
Why Insurance and Insurers Can Change Behaviour
- Insurers want the same thing as the people or groups they are insuring: they want to avoid costly problems and disasters. Insurers want to minimize payouts to the people or groups they insure so they can stay in business (and make money in the case of for-profit insurers). Likewise, the people or groups insured do not wish to incur losses or damages.
- When insurers talk, people listen. Insurers are uniquely positioned to work with policy holders to prevent and reduce risk because policy holders are incentivized to take risk-reducing actions they might not otherwise take, to avoid higher premiums. And many insurance companies actively lend their expertise to those they insure to help them take risk-reducing actions (i.e., actions that decrease the frequency with which adverse events happen and the amount of damage they cause.)
- Insurers have some serious analytical chops. They need to be able to calculate risk appropriately (again, how likely adverse events are to happen and what they will cost). Based on these assessments, they then need to determine what risks they will insure, at what price, and with what terms and conditions. The data and analyses they generate can be very helpful for public policy making
- Insurers think long term. Unlike many politicians who focus on relatively short political/election time scales (often 2-6 years) which lead them to ignore serious risks and avoid taking measures to reduce exposure to risk, insurers are thinking pretty far into the future to stay in business.
Reproduced from ‘Can we insure our way to healthier oceans and ocean communities?’ By Sarah Carr, MEAM
Regulators Get Busy
There has been a good deal of activity to establish the framework for and regulation of ‘sustainable insurance’ since the Paris agreement was signed. Much of this has been driven by UN Environment, which created the four Principles of Sustainable Insurance in 2012 and which set up the Sustainable Insurance Forum (SIF) in 2016. The SIF brings together insurance supervisors and regulators and is intended to act as a “trusted partner” to the International Association of Insurance Supervisors (IAIS) on climate and sustainability issues.
PSI / SIF have been holding meetings regionally, with the latest, in Rio de Janeiro, taking place in mid-May 2018, as part of a three-pronged consultation process designed to result in the issuance of TCFD-like guidance for insurers on climate risks and issues, due in spring 2019. An ‘issues paper’ was released in April 2018 and a PSI-initiated survey in 10 languages on ESG issues in insurance is open until 30 June.
Meanwhile, Dave Jones, California insurance commissioner and a SIF member, has carried out a ‘first in the nation’ stress test of all the major insurers in the state, designed to assist them in meeting TCFD recommendations. A forward-looking scenario analysis has been published on the commissioner’s website and individual results will be sent to all 672 insurers with over $100 million in premiums and the top 100 companies by investment portfolio size.