Monday 3 December saw a collection of re/insurers, investment and asset managers and scientists gather to discuss one of the most challenging topics facing our industry: climate change.
John Scott, Head of Sustainability Risk at Zurich Insurance, opened the conference with a question that resonated throughout the day; are insurers sufficiently considering the long-term impacts of climate risk on their business models? His keynote address was succinctly concluded with the message that actions need to be taken now to ensure we are prepared for the future. This set the scene for an insightful series of panel discussions and presentations covering the three broad topics of physical, transition and liability climate change risk.
An early session considered the role of regulators in sustainable insurance, with Mark Cornelius from Prudential Regulation Authority (PRA) stating that “no firm can escape climate change risk”. The consensus of the panel was that the regulator has a significant role to play and that there is a need for them to address market failure- as Zelda Bentham from Aviva stated, ask the market to “step-up”.
The Task Force on Climate-related Financial Disclosures (TCFD) was a key theme of the day, with several sessions touching on the topic. With over 551 global supporters of TCFD, it is becoming increasingly important to consider whether this is the path to industry best practice.
The challenge of assessing transition risk was the focus of a panel discussion involving representatives from not-for-profit organisations. One of the issues the industry faces is trying to identify what is driving transition risk. Again, the regulator was identified as a key player, along with the economy and competitive nature of the industry. The final message on this subject, from Jakob Thomä of 2° Investing Initiative, was to stop treating long-term research as a “cute aside” and start investing now for the future – very much the theme of the conference.
One session that proved particularly interesting was a presentation on ‘quantifying the financial impacts of climate change risks – progress to date’ from Tom Philp (AXA XL). As well as identifying some of the challenges of using climate projections in pricing risk, such as climate model uncertainties and spatial resolution of global data, Tom acknowledged that it will be a cultural shift to account for climate change, but perhaps one the industry is willing to move towards.
The fact that the Insurance and Climate Risk conference was well-attended by market-leaders who engaged in challenging discussions may be testament to the industry’s attitude towards integrating climate change risk into their business models. Peter Cripps, Editor of Environmental Finance, summarised the situation well: “Insurers have a vital role to play in the transition to a low-carbon economy. They are uniquely exposed to the risks and opportunities posed by climate change.” With the conference returning in 2019, it will be interesting to hear whether any of the key discussion points have been converted into actions and, as a result, if views have changed.
