Report examines how underwriting mechanisms may support net zero goals

A new paper from insurance group, ClimateWise, examines the ways in which insurance underwriting can support insureds in their climate transition plans, and enable the strategic, operational and underwriting practices conducive to their climate goals.

“It is clear that the insurance industry could support and steward the transition to a low-carbon, resilient society through incentivising stakeholders and taking practical actions on underwriting activity,” the report states. “These need to draw on their existing knowledge and expertise on risk management and applying it to the problems posed by climate change.”

To propel net zero underwriting practices, the report outlines key considerations, including:

• setting boundaries for emission scope for insurance industry;
• measuring net zero alignment with carbon footprinting, transition pathway evaluation and temperature score;
• understanding net zero implications for each insurance underwriting lines of business; and
• reacting to different insured client, asset and activities.

These considerations require a detailed view of the insurance value chain which can then enable understanding of what net zero means to each stakeholder associated with underwriting activity. There also needs to be clear emissions scope guidance and robust measurement methodology, to enable meaningful target-setting and the anchoring of practical actions.

Dominic Christian, global chairman, Reinsurance Solutions, at Aon and ClimateWise chair commented: “As net zero commitments develop for the insurance industry from our operations, to investments and now underwriting, business policies and approaches needed will reply on collaboration across the insurance value-chain. ClimateWise has been at the forefront of the insurance industry’s climate change understanding and preparedness for society for near 15 years, and we will continue to.”

Using illustrative case studies from ClimateWise members, the report provides a summary of benefits and limitations of current approaches and tools to measure underwriting portfolio alignment with net zero and the Paris agreement. It also asserts that tools and practices that are transparent and open-sourced can enable and facilitate insurers to drive more action towards delivery of net zero. The case studies outlined include:

• CISL’s Investment Leaders Group’s Temperature score methodology, which converts emissions reporting data into an intuitive degree celsius metric.

• Climate Transition Pathways which creates a practical solution that insurers, as well as other financial institutions, can utilise to help them meet their net zero commitments, enabling them to identify and support those insured organisations committed to executing robust transition plans.

• Milliman and OneRisk Consulting working in partnership to create an underwriting portfolio climate risk assessment tool.

Bronwyn Claire, senior programme manager for insurance leaders group ClimateWise added: “Our report provides insights on the knowledge, skills and tools needed for the insurance industry to support the net zero commitments made at COP26 by the industry, nations and economy. We aim to provide confidence to firms, policymakers and regulators to step forward with ambition to address climate change before the physical risks of 1.5 degrees or higher warming become more apparent.

“While the data, tools and skills for measuring and evaluating underwritten emissions and client transition plans remain nascent, our case studies we show that steps are being taken by the insurance industry and guidance on building capacity and capability. Collaboration and backing by each element of the insurance supply chain from brokers to reinsurance and claims management is critical to success of finance and the economy’s transition to net zero – everyone has a role in our future.”

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