Insurers told to step up on climate change commitments

The global insurance industry has been told it has to put environmental and biodiversity concerns at the heart of their underwriting strategies and to play a bigger role in the fight against climate change.

A new report from WWF Switzerland and Deloitte Switzerland has shone a light on the impact of insurance companies´ underwriting business on climate change and biodiversity loss.

The report, Underwriting our planet: how insurers can help address the crises in climate and biodiversity, found that many economic activities underwritten by insurance companies are fuelling climate change and nature loss rather than addressing this twin crisis.

The report also showed how this trend can be reversed to achieve global climate and biodiversity goals. It covers a wide range of non-life underwriting fields, such as liability insurance, marine and vehicle insurance, or property insurance with real-life examples from various industry sectors.

Thomas Vellacott (above) CEO of WWF Switzerland said: “This summer, we witnessed devastating heatwaves and wildfires across Southern Europe, Northern Africa, Asia and Northern America. Insurance companies and their clients are particularly affected by these events as they lead to greater payouts and entire regions become uninsurable. It´s high time insurers address these risks by aligning their underwriting business with global climate and biodiversity goals to protect what is of value for our future.”

Although some insurance companies have started to integrate environmental considerations into their business strategies, the two organisations said current actions undertaken fall short of what is needed.

For example, while there is an overall increasing awareness of the considerable risks caused by extreme weather events, the insurance sector is barely addressing how the underwriting business is contributing to those risks.

The report said in 2022, global economic losses from natural disasters were about $275 billion but only $125 billion of the total loss was insured. And those figures do not include the non-monetary harm to people and nature.

In response to higher expected losses, insurance companies are increasing insurance premiums, limiting coverage, or completely withdrawing from markets. For instance, in Florida, US, flood insurance costs this year are expected to double, or even triple for thousands of homeowners in areas prone to flooding. Meanwhile, in California, after several seasons marked by devastating wildfires, at least three big insurance companies ceased to underwrite new policies for home insurance.

Thew report added: “With $6.86 trillion in gross written premiums (2021), insurance companies are an economic heavyweight with enormous potential to reduce the negative impact on climate change and nature loss through their underwriting business, and to speed up the transition to a net zero, nature positive economy.”

Marcel Meyer, Head Sustainability, Deloitte Switzerland explained: “The insurance industry has the power to play a leading role in our effort to work towards a sustainable future. With their reach to all industries, insurance companies have the ability to incentivize sustainable practices and promote responsible behaviours of its customers. By incorporating environmental considerations into their business practices, insurers can help protect biodiversity, mitigate climate change, and build a more resilient and sustainable future.”

The two companies said insurance companies have several possibilities to reduce their negative environmental impact and to become catalysts for a green, fast and fair transition. Taking swift action on climate and biodiversity is in the best interest of insurance companies in the face of the threat of un-insurability. WWF recommends insurance companies implement the following measures in their underwriting business:

  • Commit to net-zero greenhouse gas emissions by 2050 and align the underwriting business with global biodiversity goals and publish and implement corresponding transition plans.
  • Engage with clients and insurance brokers to align with those goals, and advocate for a fast, green and fair transition.
  • Promote green and resilient choices by clients through the design of insurance products and during claims management processes. For example, insurance companies should offer new products for renewable energy or recycling projects and nature based solutions. They should provide incentives for homeowners to (re)build to the highest sustainability standards and favour “repair over replace” during claims management.
  • Review environmental liability policies to eliminate “harmful” incentives that impact the environment and people (“moral hazard”) and instead require clients to adhere to the highest environmental standards.
  • Exclude the most environmentally harmful economic activities and sectors from insurance policies, such as projects expanding fossil fuel supply, deep sea mining, deforestation, or illegal, unregulated and unreported (IUU) fishing.Communicate clear phase-out of insurance coverage of any fossil fuel-related activities in line with the International Energy Agency’s Net Zero Emissions by 2050 Scenario.

The report concluded policy makers, insurance regulators and supervisors can help insurance companies reach global climate and biodiversity goals by aligning insurance regulation, policies and supervision with these recommendations as part of their transition planning towards a net zero, nature positive economy.