Insurers have not gone far enough in overhauling their underwriting practices to respond to climate change, with US groups the furthest behind, according to the head of a joint initiative between the industry, World Bank and UN.
The insurance industry has so far focused more of its effort in steering its vast investment portfolios away from polluting companies. But policymakers, investors and campaigners are increasing pressure on insurers to reduce their “insured emissions”, or the carbon footprint of the companies for which they provide cover.
Ekhosuehi Iyahen, secretary-general of the Insurance Development Forum, a public-private initiative involving insurers such as AIG, Axa and Aviva, alongside the World Bank and UN, called for the industry to show “more ambition” in cutting the carbon impact of its underwriting.
Iyahen said the UN-convened Net-Zero Insurance Alliance launched earlier this month had made a welcome start in drawing together eight European groups in a pledge to bring their insurance and reinsurance portfolios in line with a goal of net zero greenhouse gas emissions by 2050.
But the industry needed to accelerate its efforts, she told the Financial Times.
“There is an [climate] emergency,” she said. “That is why I say, yes, it is nice to have 2050, and we must all try to corral everybody around that, but actually the issue is even more urgent than that.”
“I do think that we need to expand it into getting more American companies behind these endeavours,” she added, “Without that, I’m not sure we are going to make that much progress.”
Extreme weather incidents in recent weeks, including devastating floods in Europe and a severe heatwave in the Pacific Northwest and Canada, have injected greater urgency — with politicians attributing the frequency and severity of such episodes to global warming. Aon, the insurance broker, forecasts the combined costs of last week’s European floods will reach “well into the billions” of euros, mostly in Germany.
Climate campaigners are also pushing insurers to go further, questioning why the Net-Zero Insurance Alliance does not require signatories to have an underwriting policy in place on coal, for example, even though its founding members have made individual pledges.
Insure Our Future, a network of climate activists, has also called on the alliance’s founding members to rule out backing of new oil and gas projects, in line with the International Energy Agency’s warning that all new ventures must stop from this year to curb global warming.
Lindsay Keenan, European co-ordinator at Insure Our Future, said that the alliance’s timeline to determine its underwriting metrics over 18 months failed to recognise the urgency of climate change.
The UN Intergovernmental Panel on Climate Change has said greenhouse gas emissions must be reduced by 45 per cent from 2010 levels by 2030 to prevent a rise in temperatures of more than 1.5C from pre-industrial times.
The Association of British Insurers’ climate change “road map” this month set a target of 2030 to have halved emissions linked to signatories’ operations, supply chain, investment and underwriting portfolios.
The Net-Zero Insurance Alliance defended its targets, noting that the commitment was to be met “by 2050”. Butch Bacani, a programme leader at the UN, which organised the alliance, said some companies would set earlier individual goals.
He argued that by including a requirement for companies to set and publicly report on science-based targets every five years, the alliance had “not only raised the net zero bar for the global insurance industry, it has essentially defined what net zero insurance is”.
Bacani cited “antitrust issues” as a barrier to collective action against any one sector, leaving members to set their own exclusion policies.
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