Insuring a Climate-Adapted World: How are Insurers Evolving to Tackle Mounting Environmental Risks?
This panel explored the evolving role of the insurance industry in addressing environmental and climate risks, emphasising the challenges and opportunities in providing risk management, investment, and transition support to corporates. The panellists brought diverse perspectives, from brokering to corporate sustainability and risk management.
Key Takeaways:
Current State of the Industry:
- The insurance industry has struggled to support Asia's evolving environmental risk landscape. Global insurers, particularly Western ones, have reduced capacity in high-risk sectors, creating gaps in coverage for critical industries.
- Insurance is a necessary but complex product, and the industry is still adapting to price physical climate risks appropriately. The increased frequency of "nuisance events" is already impacting pricing.
- The insurance industry's retreat from high-risk sectors has pushed industries to accelerate their decarbonisation efforts. However, there is still a need for a more coordinated approach in transition support.
Challenges in Risk Mitigation:
- From a corporate perspective, even after significant sustainability investments, insurance premiums are not decreasing. The challenge lies in data limitations and the inability of models to fully capture local risk mitigation efforts and infrastructure improvements.
- The insurance sector needs to move beyond ESG reporting to actively engaging in risk reduction and resilience planning. Investments in sustainability must translate into tangible risk mitigation to be reflected in insurance premiums.
Insurer Engagement and Collaboration:
- Insurers need to be involved earlier in project planning to understand risks and suggest mitigation strategies. Waiting until the end of projects leads to missed opportunities for meaningful risk management.
- Companies should consider alternative risk management solutions, such as captives and parametric insurance, to better control rising insurance costs.
Investment and Innovation:
- Insurers have the opportunity to contribute not only through underwriting but also by investing in green and sustainable projects. By financing climate-resilient infrastructure, they can help reduce future claims and support global decarbonization goals.
Future Outlook and Recommendations:
- There is a growing need for data transparency and improved risk models that account for real-time climate impacts and corporate mitigation efforts. A shift from merely reporting emissions to focusing on risk reduction i necessary.
- As climate risks continue to rise, insurers must balance financial stability with supporting clients' transition efforts. This includes innovating in coverage options and providing technical guidance.
Audience Questions & Insights:
- Adaptation in the Agri-Food Sector: Insurers are exploring ways to support regenerative agriculture and other green technologies but need to balance investment risk and long-term viability.
- Challenges in Singapore: Rising insurance premiums and the need for more proactive risk management were highlighted. The panel called for better integration between insurers, corporates, and government agencies to improve resilience and risk assessment.
Conclusion:
The discussion emphasised that while the insurance industry is making strides in addressing climate risks, there is still much to be done. Collaboration between insurers, corporates, and governments is essential to create a resilient, climate-adapted world. The panel closed with a call for innovative solutions, better data usage, and continued dialogue to meet the growing challenges posed by climate change.
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Speakers:
- Christopher Au, Director, Asia-Pacific Climate Risk Centre, WTW
- Foo Peng Er, Vice President, Group Sustainability, CapitaLand Investment
- Steve Tunstall, Director, PARIMA
- Vipul Shetty, Head of Energy Transition Solutions, Howden
Moderator:
- John Maroney, Chief Executive Officer, Global Asia Insurance Partnership