The insurance industry made further progress on climate change resilience at November's COP26, but has a ways to go when it comes to reducing or eliminating underwriting for carbon-related activities.
Insurers had a bigger presence at COP26 than at previous gatherings and had a particularly robust showing in the resilience conversation, Rowan Douglas, head of global insurance broker Willis Towers Watson PLC's climate and resilience hub, said in an interview. The industry unveiled two initiatives to advance greater climate resilience globally.
The Insurance Development Forum, an industry-led public-private initiative that aims to improve countries' natural disaster resilience through insurance and risk management, at COP26 launched the Global Risk Modelling Alliance, which seeks to improve climate-vulnerable countries' access to risk modeling. It also co-established the Global Resilience Index Initiative to create a global model for measuring climate resilience.
The next step for both initiatives is building public-sector support and getting the Global Resilience Index Initiative up and running by next year's COP27 meeting in Egypt, Ekhosuehi Iyahen, the Insurance Development Forum's secretary general, said in emailed comments.
Fossil fuel feud
Continued support for fossil fuel underwriting got a frosty reception from some at COP26, raising questions about their progress on climate goals. Industry representatives were clear during COP26 that carriers would not stop insuring fossil fuels entirely, but instead help companies make the transition to renewable energy.
There is a role for engagement with fossil fuel companies on a transition, Peter Bosshard, global coordinator of the Insure Our Future campaign, said in an interview. But that engagement should be time-restricted and have consequences, otherwise insurers are just "kicking the can down the road," he said.
Bosshard said insurers have made rapid progress on exiting coal underwriting, but expressed disappointment in their different approach to oil and gas. He said the first step carriers should make is to stop insuring the expansion of oil and gas production and stop giving off the impression that they are "trying to buy themselves more time" to underwrite fossil fuel projects.
Members of the UN-convened Net-Zero Insurance Alliance, or NZIA, consisting of 14 insurers and Lloyd's of London, pledge to reduce the greenhouse gas emissions in their underwriting portfolios to net-zero by 2050. The NZIA is looking to launch its target-setting protocol in January 2023, after which members have six months to come up with their first set of interim five-year goals. The alliance is also working with the Partnership for Carbon Accounting Financials on a global standard for measuring and disclosing insured greenhouse gas emissions, slated for launch in summer 2022.
"If it is 100-meter race we are just off the starting blocks," Butch Bacani, program leader for the UN Environment Programme's Principles for Sustainable Insurance Initiative, said in an interview.
Just getting started
S&P Global Market Intelligence asked the eight NZIA founding members whether they planned to go further on curbing oil and gas underwriting than already announced and what limits they were imposing on engagement.
Zurich Insurance Group AG in an email said its plan to evaluate oil and gas customers' net-zero transition strategies over the next 24 months includes an assessment of the role of new gas projects in displacing more carbon-intensive fuels. The next steps will be informed by oil and gas guidance, expected later in 2021 from the Science-Based Targets Initiative, a body that defines best practices in emissions reduction, and the output of the NZIA's work on measuring insured greenhouse gas emissions.
Swiss Re AG reiterated a pledge made in 2020 to stop providing individual insurance cover to the companies responsible for the 10% most carbon-intensive oil and gas production in the world by July 2023.
Munich Re said it was sticking to the plan announced in December 2020, which includes cutting carbon emissions relating to oil and gas underwriting by 5% by 2025.
"We monitor relevant market developments and continuously expand our ESG strategy," an Allianz SE spokeswoman said in an email.
The NZIA waiting for certain metrics and goal-setting does not mean its members are doing nothing in the meantime, Bacani said. Insurers joining the alliance need to tell the UN what they plan to do over the next 12 months to decarbonize their underwriting portfolios immediately.
The alliance is also pushing for companies to do more carbon reduction early on so there is less reliance on not-yet-proven carbon reduction technologies to reach net-zero, Bacani added.