Risk prevention is a core component within the insurance sector, making insurers and brokers perfectly placed to steer the work around climate change

By Editor Katie Scott

Although the Covid-19 pandemic has been the most notable and obvious risk on insurance firms’ registers for the past year, there has been another key risk lurking in the background that had been temporarily overshadowed by the virus.

Now, with lockdown easing and the vaccination roll out proving successful, climate change is taking centre stage as Covid’s co-conspirator on insurers’ and brokers’ watch lists.

In terms of tackling climate change, the London market in particular has been a focal point for insurance customers. For example, last month members of climate change action group Extinction Rebellion unloaded a large pile of fake coal outside the Lloyd’s of London building, protesting the market’s role in insuring and investing in the fossil fuel industry.

Campaigners have also been targeting the market thanks to its role in providing insurance for Australia’s Carmichael coal mine.

This is a thermal coal mine under construction in the Galilee Basin in Central Queensland. The project was given the go ahead in June 2019 and construction began later that year. It is being led by Indian multinational organisation Adani Group.

So far, Tokio Marine Kiln, Liberty Mutual, AXA XL, Aspen Re and Apollo have all refused to participate in future underwriting for the project, despite the fact that Lloyd’s of London’s current policy allows its members to continue insuring existing coal projects until 2030.

Reputation for innovation

However, writing in a report published this month by broker Aon, AXA XL’s chief executive for UK and Lloyd’s Sean McGovern said that “the insurance industry – and the London market in particular – has an important role to play in supporting companies across all industries to adapt to reduce carbon emissions and manage the risks associated with climate change”.

He explained this is because the “London market has a centuries-old reputation for innovation”, which means “that our marketplace is at the forefront of public-private efforts to help communities build resilience to climate change”.

He continued: “Collaborative projects such as the insurance industry-led Insurance Development Forum and the UK government-backed Centre for Disaster Protection are working to provide training, tools and concrete plans to develop resilience through risk mitigation and transfer.”

At AXA XL specifically, McGovern noted that the insurer has “underwriting restrictions for power generation and mining clients developing new thermal coal capacity or with significant coal business, as well as coal industry partners, such as manufacturers and infrastructure players.

“This is part of an AXA-wide, long-term exit strategy to reduce exposure to the thermal coal industry to zero by 2030 in the European Union and [Organisation for Economic Co-operation and Development] countries, and by 2040 in the rest of the world”.

Customer lens

Plus, let’s not forget the pressure being put on insurance firms by its own customers to embrace an environmental, social and governance (ESG) led stance.

This “now forms part of the risk presentations that clients across many lines of business make to us”, McGovern added, which in turn impacts their “risk profile, risk management and risk transfer needs”.

He continued: “Our industry needs to adapt to these changing client profiles. Fortunately, the London insurance marketplace has always been a place where innovation thrives.

“The intellectual capital gathered in the Square Mile and within the underwriting room at the iconic Lloyd’s building makes it easy for ideas to take flight and become tangible risk transfer mechanisms for challenging, emerging and sometimes unusual risks.

“While the Square Mile has – physically at least – been less busy than usual during the Covid-19 lockdowns, the players in our market – brokers, insurers, reinsurers, risk experts, actuarial scientists and so on – have continued to drive forward discussions on the very pressing issue of climate risk.

“Innovative risk transfer solutions and risk mitigation techniques are being devised and developed every day.”

Risk prevention is a key element within the world of insurance – whether this is cyber insurers working to improve commercial clients’ IT security, or home insurers relying on nifty devices to detect water leaks, for example.

Insurers and brokers need to apply this same risk mitigation mindset to the broader climate change challenge. With such a large part of their day job focused around risk prevention, insurance firms are so well suited to lead this charge, setting an example for as well as supporting other business sectors.

As the Covid road map continues to pan out and climate change returns as a prominent discussion point, it will be interesting to see how insurance firms will step up – many have already made their intentions clear (such as Aviva and Clear Group), however it is evident that insurance customers feel the London market can do more.

Report – The London Insurance Market: Beyond 2021, published by Aon and the City of London Corporation, May 2021.