Lloyd’s accepts looming possibility of climate change systemic risk

Echoing the recent assertion of market maven Stephen Catlin, Lloyd’s head of innovation Trevor Maynard has agreed that climate change may well be a systemic risk to trouble the market within 10 years.

Maynard (above) was speaking at a webinar organised by the Insurance Institute of London (IIL), ‘Innovation at Lloyd’s – Making the intangible tangible’ (#IILwebinar).

“Climate change is definitely a systemic risk, and I think it could well be a systemic risk within 10 years as inputs from crops and flood risk will feed through to assets,” he said, adding that “it may be a surprising one, with physical effects coupled with asset value and litigation.”

His comments echo observations made by Stephen Catlin, the CEO of Convex, who recently suggested that the insurance industry faces the prospect of looming climate change-related systemic losses.

Catlin was speaking as part of the second Futureset Systemic Risk Masterclass, jointly run by Lloyd’s and the Chartered Insurance Institute.

“When we talk about insurance we talk about the many paying for the few, but the trouble with systemic risk is that the many are paying for the many,” he proffered, suggesting that the nature of such risks are debatable but could well include certain consequences of climate change within the foreseeable future.

Crucially, he suggested, “it is not inconceivable that in 5-10 years’ time we will face a systemic exposure from climate change”.

Climate change-related risks were a major component of Lloyd’s first Environmental, Social & Governance report released last December.

In the report the market pledged to end investment in thermal coal-fired power plants, thermal coal mines, oil sands and new Arctic energy exploration activities. This involves ending new investments in these areas by Lloyd’s market participants and by the Corporation, from 1 January 2022, and the phasing out of existing investments in companies with business models that derive 30% or more of their revenues from thermal coal-fired power plants, thermal coal mines, oil sands or new Arctic energy exploration activities by the end of 2025.

Lloyd’s also signed up to publish a road map that will set out how the Corporation will become net zero in its operations by 2025 and will work with the market to support their own implementation of net zero emission plans.

Managing agents in the Lloyd’s market will be asked to no longer provide new insurance cover for thermal coal-fired power plants, thermal coal mines, oil sands, or new Arctic energy exploration activities from 1 January 2022.

To enable the market to support their customers as they transition their businesses, the target date for phasing out the renewal of existing insurance cover for these types of businesses is 1 January 2030 (including for companies with business models which derive 30% or more of their revenues from any of these activities). Lloyd’s will consult with the market and policyholders and provide ongoing support and guidance during this period of transition.

Lloyd’s also signed up to publish a road map that will set out how the Corporation will become net zero in its operations by 2025 and will work with the market to support their own implementation of net zero emission plans.

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