Businesses need to understand they will be operating in a new climate

When it comes to climate risk the past week has posed so many questions businesses and their insurers would be forgiven for struggling to know where they need to start.

The Intergovernmental Panel on Climate Change (IPPC) issued its new report on the world’s efforts to combat global warming and while the message was not without hope the key takeaway was business and government are simply not doing enough to reach anywhere near what is needed by the end of the decade.

The most concerning issue was the increasing pressure to end the use of all fossil fuels well before the Net Zero pledges already in place. Climate groups have made it clear the time to leave fossil fuels in the ground is now and a phased approach is no longer desirable or acceptable.

It will place (re)insurers in the front line once again over their insurance of oil, gas, and to a far lesser extent coal risks. Last Friday we saw yet another demonstration outside Lloyd’s by climate groups who want the market to get tough on syndicates and their underwriting of fossil fuel energy risks.

The ongoing issue is the balance between a swift exit from fossil fuels and quite simply keeping the lights on. Renewable energy options are available but they are nowhere near the required scale and the costs are also currently prohibitive.

A report for the European Investment bank has poured further fuel on the flames the debte with the results of a study which found increasing numbers of workers under 30 would turn their backs in businesses which had poor records in terms of their ESG with climate action a key point. Indeed Almost six out to 10 said they would be willing to see the imposition of personal carbon budgets which could be spent over a year on climate impacting operations such as flights.

The week has ended with a new Sigma study from Swiss Re which put the insured costs of natural catastrophe claims last year at in excess of $1 billion.

(Re)insurers are now reaching the point where the fear that climate related risks will become uninsurable due to the sheer scale of exposures is fast becoming a reality. It only goes to create more challenges for both underwriters brokers and their clients at a time when the impact of the pandemic and the economic crisis, exacerbated by the pressure on global supply chains caused by the Russian invasion of Ukraine, it is hitting businesses of all sizes.

Risk managers, brokers and insurers are struggling to keep pace with a rapidly changing risk landscape which is being driven by geopolitical, societal risks we have simply not been experienced before.

Lloyd’s head of market, Patrick Kiernan summed up the situation when asked why the market was launching a new scheme which would see state backed cyber risks separated on the market’s cyber cover policies.

The reason he said was that the industry  has no “muscle memory” in how to deal with major cross market cyber incident, and therefore there needed to be real transparency on exposure levels.

The worry is that there are now a lot more risks for which the market is similarly found to be without the necessary memory.

Jon Guy, Editor

Emerging Risks