Report warns climate risk cannot be insured in isolation

The University of Cambridge Institute for Sustainability Leadership (CISL) will today launch a new report at COP26 urging policymakers, financial regulators and industry to expand risk sharing systems at scale to tackle the Climate Emergency.

“Risk Sharing in the Climate Emergency: Financial regulation for a resilient, net zero, just transition” concludes that to manage risks they have to be shared. It proposes twenty concrete steps to urgently govern, manage, and reduce climate risks for a just, resilient transition to net zero in developing and developed countries. The report is co-authored with global law firm Clyde & Co,

Bronwyn Claire, senior programme manager for insurance leaders’ group ClimateWise 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.”

Writing in the foreword to the report, Mark Carney, UN Special Envoy on Climate Action and Finance said: “In the face of the unfolding climate emergency, this report provides a timely and valuable overview of the lessons we can already draw from the global insurance system – across public, private and mutual sectors – and the opportunities for that system to help increase our systemic resilience to the worst effects of climate change.

“The global financial system is leading the way in the run up to COP26. This collaboration between senior regulators, policymakers and industry extends that leadership by informing a pathway beyond Glasgow that aims to secure a smoother and more equitable transition to a resilient, zero-carbon future.”

CISL’s report, launched in Glasgow on COP26 Finance Day, builds on the work of its insurance leaders’ group ClimateWise and highlighted five key areas of action for policymakers, private and public financial authorities and the insurance sector.

Dominic Christian, global chairman Reinsurance Solutions Aon and chair of ClimateWise said: “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 said to share climate risks at scale, they must be measured consistently. Within risk-sharing systems, the insurance sector (premium-based risk-sharing) has unique risk quantification and management skills, overseen by regulation. The report proposes these approaches spread across wider financial regulation, from microfinance to global financial institutions, to achieve a

CISL called on key economic, policy, industry and advocacy actors to support a just, resilient net zero transition in the following ways:

  • Policymakers – reinforce financial inclusion and sustainable development priorities within insurance regulators’ mandates to meet the climate objectives;
  • Financial markets beyond insurance – accelerate consistent physical climate risk quantification through insurance experience, methods, metrics and resources;
  • Public and private financial authorities – massively expand risk-sharing pools across financial systems to manage global-to-local and intergenerational climate risks;
  • Insurance regulators and climate authorities – explore ways for UNFCCC and IAIS members to co-operate on shared climate risk objectives;
  • Insurance sector – become pioneers of climate-related disclosures, prudential supervision and climate stewardship;
  • Academia and NGOs – research the role of the insurance system in managing the social risks of the net zero transition.

Nigel Brook, Partner at Clyde & Co said: “The transition to a net zero economy will require an unparalleled level of investment in new technology and infrastructure that will require complex financial and risk transfer solutions developed and delivered at unprecedented speed. 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.”

“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.”

Dominic Christian, Aon

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