COP 27
Talking point: the role of insurance in climate risk
Jad Ariss, managing director of The Geneva Association, highlights the core messages from its Climate Change & Environment Conference.
“Insurance is an enabler of new technologies by covering risks associated with them.”
Jad Ariss, The Geneva Association
I would like to share with you my key takeaways from our Climate Change & Environment Conference on November 3, and also put these in perspective with The Geneva Association’s current research.
I am taking out of these sessions three very clear messages.
The first one is that insurers are deeply and heavily committed to addressing climate change, by leveraging their core competencies, underwriting and investing. It has become a cliche to say that we are in the midst of an unprecedented transition. It is true that never has humanity faced such an existential threat and to achieve net zero many industries, if not all, are completely overhauling what they do and how they do it.
Innovative new technologies are necessary for this which requires capital. Insurers, who are massive institutional investors, are well positioned to provide this. At the same time, these new technologies introduce new risks which needs to be covered, and for that they need to be assessed and priced. As it has been for many decades, insurance is an enabler of new technologies by covering risks associated with them.
What I hear directly from The Geneva Association’s CEO members is that climate change is keeping them awake at night and they’re doubling down on solutions. Two manifestations of this are the net zero alliances, which the industry is either leading or strongly contributing to: the Net Zero Insurance Alliance and the Net Zero Asset Owner Alliance, to which The Geneva Association recently became a supporting institution.
The second takeaway is that, as the word transitions towards net zero, there will be more frequent and more severe natural disasters, which we call physical climate risks. As a matter of fact, this past summer, in many parts of the world but notably in Europe, has been a wake-up call. The general public has realised that climate change risk is not only about our grandchildren or our children, but is happening now and it is about us.
To promote the long-term insurability of physical climate risks, insurers are accelerating prevention and mitigation measures. And we see many examples of this, such as making flood insurance contingent on meeting building and construction standards.
“The Geneva Association has three pieces of research coming out in the next 12 months.”
Partners needed
The third message that I am getting is that there is only so much the industry can do on its own. Governments are an essential partner for insurers. They are an essential partner in risk prevention and reduction. And, with their ability to use public policies and nudges to incentivise responsible behaviours, they are also an important partner in risk absorption, because we will likely reach a point where insurers will no longer be able, because their capital is not unlimited, to absorb fully the potential losses.
Incidentally, this is what we saw with the business interruption debate during the lockdowns of the pandemic. So the public sector has a major role to play in backstopping risks in certain areas—for example, climate change, nuclear risks, and terrorism.
More broadly, the transition to net zero needs not only a favourable, but also a consistent public policy and regulatory environment—at the regional but also at the global level. Only then will we be able to keep premiums affordable for customers, ensure that the protection gap does not increase, and make underwriting climate risks viable for insurers.
The Geneva Association has three pieces of research coming out in the next 12 months.
This month, November 2022, we’ll be publishing a major piece of research on nature risks and the insurance industry. This paper will address topics such as biodiversity, erosion, deforestation, and the links of climate change. In May 2023, we will have a major research paper on how the industry can support the emergence of new climate technologies. And in the second half of 2023, we will have a report on the long-term insurability of climate risk.
Panel 1: Managing Risks Related to Deploying Climate Technologies is here.
Panel 2: Long-term Insurability of Physical Climate Risks – Drivers, challenges and solutions is here.
The Geneva Association is a non-profit organisation with offices in Zurich. It is funded by its insurance and reinsurance CEO members, whose companies are headquartered in 25 countries around the world, manage $17 trillion in assets and protect 1.8 billion people.
Image Credit; Shutterstock.com / William Perugini
Share this page
