CLIMATE RISKS

Natural know-how

The world’s insurers apply their expertise to develop adaptation and mitigation solutions for climate change and enhance the resilience of societies

By Christian Pierotti, chair of the GFIA climate risks working group

In mid-2021, as fierce fires, floods, heatwaves and droughts raged in countries around the world, including Canada, China, Germany, Italy, Russia, Turkey and the USA, the UN Intergovernmental Panel on Climate Change (IPCC) issued a report that rings out as a powerful and unmissable call to action for all sectors and societies. Climate change is heavily affecting every region, and strong and collective action is urgently needed to alter its current course.

Source: US Global Change Research Programme

As experienced risk experts, insurers and reinsurers are well positioned to identify opportunities to create innovative adaptation instruments and to select risk-appropriate investments. And they encourage their policyholders to join them in working on the transition to more sustainable economies and resilient societies. Throughout the last year, in the climate risks working group, GFIA members shared insights and best practices on how to efficiently combine economic recovery with the need for a sustainable transition in a post-COVID world.

Making the global industry heard in international fora

In the last year, GFIA has issued two papers highlighting the varied contribution of the insurance industry to the adaptation and mitigation of climate risks, as well as its ability to support the global sustainability agenda by fostering new mitigation technologies and by investing in sustainable assets.

In November 2020, during Global Adaptation Week, GFIA stressed the key role played by insurers in advising policymakers on how to adapt our societies to a changing climate and how to mitigate its consequences. GFIA released a selection of examples illustrating its members’ deep commitment to meeting the challenge of climate change across the world. These cover actions to mitigate losses, to increase transparency about risks, to better understand the threats, to fill knowledge gaps and to increase collaboration between the public and private sectors.

In April 2021, GFIA highlighted that Earth Day is, in fact, every day for the insurance industry, as insurers play a critical role in developing innovative adaptation solutions, in measuring and pricing climate risks to inform risk management, and in providing economic support to people and communities when disasters strike.

“The transition to a sustainable economy needs cross-sectoral action involving all economic stakeholders and decision-makers.”

Contributing to COP26

GFIA has also worked relentlessly throughout the year on contributing positively to the major landmark of the year on climate: the COP26 UN conference. Building on the call for action launched by the UN Special Envoy for Climate Action and Finance, the global insurance industry positioned itself as a reliable and expert partner to work with public authorities on resilient and green solutions as part of the international recovery.

GFIA organised a high-level webinar — on the sidelines of COP26 — to share views with supervisors, regulators and international players on the most efficient ways to curb climate change.

GFIA released a high-level statement highlighting the critical and multifaceted contribution made by the industry to the efforts to adapt to and mitigate climate change. The working group has gathered numerous examples from its member markets to illustrate the concrete actions being taken by insurers to foster a sustainable transition. GFIA also called for closer cooperation between the public and private sectors when designing adaptation and mitigation policies. Indeed, the transition to a sustainable economy needs cross-sectoral action involving all economic stakeholders and decision-makers.

Finally, the working group explored the issues of better building and rebuilding, as this is a key component in improving infrastructure and construction resilience and in successfully implementing adaptation strategies in all sectors. GFIA developed key principles for more resilient and sustainable construction, promoting the use of green materials, circular economy channels and co-financing to increase resilience.

Deepening dialogue with international supervisors and regulators

Throughout the year, GFIA has held discussions with international supervisors on climate-related issues. In January 2021, GFIA submitted comments to the International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum on their Application Paper on the Supervision of Climate-related Risks in the Insurance Sector. GFIA acknowledged the importance of providing guidance on climate risks, but cautioned against overly prescriptive approaches and called on supervisors to fully take into account materiality and proportionality in their guidelines. GFIA pinpointed the lack of available and reliable environmental, social and governance (ESG) data as one of the major limitations to long-term sustainable investment.

GFIA also urged supervisors to maintain a regular dialogue with stakeholders in order to better understand their needs and perspectives. Such dialogue was in evidence in GFIA’s exchanges of views with the IAIS in February 2021 on climate risks and with the Sustainable Insurance Forum in July 2021 on shared priorities, with a strong focus on ongoing work on biodiversity. Building on this fruitful dialogue, GFIA will continue to explore opportunities for cooperation on sustainability issues.

“The lack of ESG data is a major limitation to long-term sustainable investment.”

Enhancing understanding

Finally, mutual learning on climate-related issues remains a key component and benefit of GFIA’s work. Throughout the year, members shared updates on their own initiatives and on climate-related regulatory developments, they reflected on difficulties and issues arising within their jurisdictions and shared best practices and solutions. Such collective work and open conversations contribute to a virtuous circle in which innovative ideas emerge and powerful solutions to foster climate adaptation and mitigation can be implemented across the world.

Christian Pierotti

French Insurance Federation