Global warming on track to make world “uninsurable”: insurance giant IAG
Posted by Jim at Sunday, November 18, 2018
By James Fernyhough
15 November 2018(The Australian Financial Review) – Insurance giant IAG has warned a failure to reduce greenhouse gas emissions could result in a world that is "pretty much uninsurable", with poorer communities likely to bear the brunt of the effects.
In Australia, IAG said temperature increases of more than 3 degrees would expose greater swaths of Queensland to cyclones and flooding, while a rise of more than 4 degrees could make the risks to insurers prohibitive.
"It's a big question because it depends on reinsurance capital, but if you take some of the models that are being done on cyclone risk, for example, there could be more of Queensland exposed to cyclone and flooding in a 3-degree world," Jacki Johnson, IAG's group executive people, performance and reputation, told The Australian Financial Review.
"There is some commentary globally that in a 4-degree world, the world becomes pretty much uninsurable."
This week 16 of the world's biggest insurers, including IAG and QBE, launched an initiative with the United Nations to develop new risk assessment tools in an effort to make insurance accessible and affordable.
Participating insurers, which also include AXA, Allianz, and Swiss Re, will work with climate scientists to develop a better understanding of the new and unpredictable weather events resulting from climate change.
The focus of the initiative is on responding to climate change, rather than preventing it. However, Ms Johnson said the future of insurance depended upon limiting global temperature rises, which could only be achieved by a reduction in greenhouse gas emissions.
"We have been very vocal [on the fact that] something will have to change because you cannot continue to have the carbon emissions and think that the world will be insurable," she said.
While the Paris agreement officially aims to keep global temperature rises below 1.5 degrees above pre-industrial levels, current policies would result in far higher temperature rises.
According to Climate Action Tracker, a German-government backed initiative, under current policies global temperatures are on track to rise by 3.4 degrees by the end of the century.
Will Steffen, professor emeritus at Australian National University and member of the Climate Council, predicted rises would be even higher.
"I suspect on current trajectories it will be more like 4 degrees. So we're not on a good track at all," he told The Australian Financial Review. [more]
Climate change on track to make world 'uninsurable': IAG
14 November 2018 (IAG) – UN Environment’s Finance Initiative (UNEP FI) announced today a partnership with 16 of the world’s largest insurers—representing around 10% of world premium and USD 5 trillion in assets under management—to develop a new generation of risk assessment tools designed to enable the insurance industry to better understand the impacts of climate change on their business. This understanding is vital for an industry whose core business is to manage risk.
The pilot group will develop analytical tools that they will use to pioneer insurance industry climate risk disclosures that are in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). This will require them to make use of the latest climate science, including some of the most advanced, forward-looking climate scenarios available.
“For generations, the insurance industry has served as society’s early warning system and risk manager by understanding, reducing, pricing and carrying risk. Its message now is loud and clear: climate change risk is intensifying and is a serious threat to the insurability of communities and economies around the world,” said UN Environment chief, Erik Solheim.
“An uninsurable world is a price that society could not afford. This is why UN Environment is working with leading insurers to understand and reduce risk, to seize unprecedented business opportunities in climate action, and to ensure an insurable, resilient and sustainable world.”
The recent report of the Intergovernmental Panel on Climate Change (IPCC) highlights the rapid, far-reaching and unprecedented changes needed to limit global warming to 1.5°C. As rising temperatures accelerate sea level rise and catalyse extreme weather events, communities, businesses, cities and countries are facing new types and higher levels of risk.
The Financial Stability Board, chaired by Bank of England Governor Mark Carney, mandated its Task Force to develop voluntary and consistent climate-related financial disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The Task Force’s final recommendations were submitted to the G20 in June 2017 and have four key pillars—governance, strategy, risk management, and metrics and targets.
The tools and indicators that will be jointly developed and piloted by the Insurer Group will incorporate the latest scenario analysis to assess climate-related physical and transition risks in insurance portfolios. Insurance coverage incentivises risk reduction, puts a price tag on risk, de-risks investments, and serves as a financial shock absorber for communities, businesses and governments.
While insurers are also major investors—with global assets under management of over USD 30 trillion—this initiative will focus on the assessment of climate risks in their core insurance portfolios and products.
"The more insurers understand climate risks facing the economy, the more they can make prudent decisions in managing risk and serving their clients, and the more efficient and stable our markets will become,” said Michael Bloomberg, Chair of the Task Force and UN Special Envoy for Climate Action.
“The pioneering work of this group will pave the way for greater climate risk transparency and climate action by the global insurance industry, and it's great to see that it's consistent with our Task Force's recommendations."
Reliable information on insurers’ exposure to climate risks will strengthen the stability of the financial system, encourage more and better disclosures from client companies across sectors, and help boost insurance products and investments needed to transition to low-carbon, climate-resilient communities and economies.
The Insurer Group’s work follows equivalent work by leading banks and investors, all convened by UNEP FI for the purpose of advancing financial sector know-how on climate change and the adoption of the Task Force’s recommendations.
Its outputs aim to support key platforms and initiatives, including the UN Secretary-General’s Climate Summit in New York in September next year to drive ambitious climate action needed to achieve the goals of the Paris Agreement on Climate Change.
IAG Group CEO Peter Harmer emphasised the importance of global collaboration to establish the framework.
“The insurance industry has long understood the risk of climate change on our communities and customers, and it is vital that the financial sector works collectively to share our knowledge and create a framework for transparent and sustainable operations and reporting,” Mr Harmer said.
“We look forward to working with our global industry peers in the UNEP FI PSI pilot, and contributing to the development of a set of standards to give investors and customers the ability to make informed decisions in the context of what IAG and our industry are doing to help combat climate change.”
Member companies of the Insurer Group
The leading insurers that will work together with the UN are all signatories to UNEP FI’s Principles for Sustainable Insurance (PSI), a global best-practice sustainability framework and the largest collaborative initiative between the UN and the insurance industry.The Insurer Group includes: Allianz (Germany), AXA (France), IAG (Australia), Intact Financial Corporation (Canada), Länsförsäkringar Sak (Sweden), MAPFRE (Spain), MS&AD (Japan), Munich Re (Germany), NN Group (Netherlands), QBE (Australia), Sompo Japan Nipponkoa (Japan), Storebrand (Norway), Swiss Re (Switzerland), TD Insurance (Canada), The Co-operators (Canada), and Tokio Marine & Nichido (Japan).
About UN Environment Finance Initiative (UNEP FI)
The UN Environment Finance Initiative is a partnership between UN Environment and the global financial sector created in the wake of the 1992 Earth Summit with a mission to promote sustainable finance. Over 200 financial institutions, including banks, insurers and investors, work with UN Environment to understand today's environmental challenges, why they matter to finance, and how to actively participate in addressing them.
About UN Environment’s Principles for Sustainable Insurance Initiative (PSI)
Endorsed by the UN Secretary-General and insurance industry CEOs, the Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities—and a global initiative to strengthen the insurance industry’s contribution as risk managers, insurers and investors to building resilient, inclusive and sustainable communities and economies. Developed by UN Environment Finance Initiative, the PSI was launched at the 2012 UN Conference on Sustainable Development, and is the largest collaborative initiative between the UN and the insurance industry.
IAG joins global pilot for insurance industry climate risk disclosure
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