The Cambridge Institute for Sustainability Leadership (CISL) report, published today to mark the COP26 event, also urged the industry, regulators and policymakers to expand public-private risk-sharing systems to tackle the climate emergency.
It said modern systems of risk-sharing include social protection, informal community networks and private sector insurance, but it added the distribution of these was uneven geographically, with minimal resources allocated to climate risk.
In insurance, the report highlighted the size of the protection gap for weather events, noting the $219bn that (re)insurers paid in 2017 and 2018 and the $280bn in damage shouldered by individuals, companies and governments during that period.
Specific measures the report called for include:
Providing best practice guidance from the International Association of Insurance Supervisors (IAIS) on how to implement TCFD disclosures
Offering more premium reductions linked to risk-reduction measures taken by policyholders
Assessing whether to introduce climate-linked capital requirements
Setting protection targets and providing premium subsidies to help close the protection gap
Mark Carney, former UK Bank of England governor and now US special envoy on climate action and finance, contributed to the report and said it presented the opportunities that the global insurance system has to “help increase our systemic resilience to the worst effects of climate change”.
The report said policymakers must reinforce sustainable development priorities within insurance regulators’ mandates to meet climate objectives.
In the wider financial sector, industries must accelerate consistent physical climate risk quantification using the insurance sector’s experience, methods and resources, it added.
Financial authorities must work to “massively expand” risk sharing pools across financial systems “to manage global-to-local and intergenerational climate risks”, the report recommended.
The IAIS and the UN Framework Convention on Climate Change must also explore ways to cooperate on climate risk objectives, while academic institutes should research the role of the insurance system in managing the social risks of the net zero transition.
Insurance leaders group ClimateWise's senior programme manager, Bronwyn Claire, said: “Traditionally expertise in risk sharing has sat with the insurance industry.
“Through our collaborative insights and desire to accelerate the transition to net zero, ClimateWise has seen how the expansion of these skills and understanding into a much wider group of economic and policy decisionmakers is vital in the race to tackle climate change.
“Cop26 leaders gathered in Glasgow have the opportunity to recognise the importance of risk sharing to support the transition to a resilient, net zero economic and finance system.
“Robust disaster risk recovery and net zero aligned economy and society depends on the framework of the financial system reflecting the impact and future implications of climate risk.”
Aon’s reinsurance solutions global chair Dominic Christian, who is also chair of ClimateWise, added: “As we each face the challenge of managing climate risk in our personal and professional roles, there is a great opportunity to step forward as leaders.
“We welcome and appreciate the calls to action set out in the report that give a clear direction and aspiration for insurance, finance, regulators and government. Stepping forward together gives us the best chance to deliver impact at a scale commensurate with the accelerating climate crisis.”
The report is co-authored by law firm Clyde & Co, and Geoff Summerhayes, formerly of the Australian Prudential Regulation Authority and ex-chair of the Sustainable Insurance Forum.
Clyde & Co partner Nigel Brook said: “Beyond the products they provide, insurers have the knowledge, expertise and skills to play an invaluable role in building resilience and addressing the risks associated with the climate emergency. In dealing with this issue, policymakers’ focus to date has mainly been on the banking and investment side of the financial services industry; they now need to broaden that focus to include insurance.”
