Net Zero Transition and Opportunities for Insurance Industry

In recent years, there has been a growing focus on ESG (Environmental, social, and governance) within the insurance industry, as insurers have come to recognise the importance of these factors to their businesses and customers. I have been writing about climate change and ESG in Insurance for several months through my blog posts.

1. Climate Change and Net Zero Target Setting for Insurance Underwriting Portfolio
2. COP27, Climate Change and Insurance Industry
3. Climate Change: It's Time for Insurers to Act!

The latest news in the ESG/climate change in insurance is the announcements made by major insurance companies leaving NZIA (Net Zero Insurance Alliance). Munich Re, Hannover Re and Zurich have announced their withdrawal from NZIA in the last three weeks. Munich Re cited antitrust risks, while Zurich cited its desire to focus resources on supporting its customers’ transition as the reason for their withdrawals.Hannover Re did not provide specific reasons for its exit; the company decided after careful consideration.

The NZIA was a group of 30 insurers and reinsurers (representing around 15% of the world’s global premium volume) committed to achieving net-zero greenhouse gas emissions by 2050. The NZIA launched its first Target setting protocol at the recently concluded World Economic Forum’s Annual Meeting in Davos, Switzerland. This protocol will enable its members to set intermediate targets for their underwriting portfolios in line with a net-zero transition by 2050.

The withdrawals of these major insurance companies are a blow to the NZIA. The alliance now has 27 members, down from 30. How the withdrawals will affect the NZIA's ability to achieve its goals is still being determined. The departures of Munich Re, Hannover Re and Zurich are a sign that the insurance industry is still divided on how to address climate change. Some insurers are more proactive, while others are more cautious. It is also worth noting that Eric Andersen, President of Aon PLC, one of the world’s largest insurance brokers, testified before a Senate committee in March 2023, sounding the alarm about how climate change impacts the insurance industry.

These departures also emphasise the need for clear guidelines from governments and regulators on anti-trust rules while forming alliances to tackle climate change.

On a positive note, all these three companies have confirmed that they will keep their commitment to sustainability even after leaving NZIA. "Our climate commitment is unwavering. We follow scientific recommendations. To date, we are decarbonizing even faster than required to reach net zero by 2050," says Joachim Wenning, CEO of Munich Re. Munich Re would stick to its climate goals outside of the NZIA, including a first-step target of reducing greenhouse gas emissions related to its investment portfolio by 29% by the end of 2025 and successively brought down to net zero by 2050.

These developments call for better involvement of government and regulators in setting the direction and rules for climate change initiatives for the sector.

ESG still provides avenues for innovation for Insurance companies. I recently had the opportunity to moderate a panel discussion on ‘Hidden opportunities in Going Net Zerto’ at the London Insurtechs Insights event. The Insurtech Insights event in London is a two-day event that brings together the insurance industry, insurtechs, and investors to discuss the latest trends and innovations in the insurance industry. This year’s event was on the 1st and 2nd of March 2023 at Intercontinental London – The O2, attended by over 5000 attendees. Over the two days, 400 speakers from the industry presented their views on technology and Insurtechs.

The panellists for our discussion were from diverse business lines in insurance. We had Gilles Moec (Chief Economist at AXA), Monique Rodrigues (CFO, Revolut Insurance), Glyn Richards (Group Director of Sustainability at BUPA) and Natalia Dorfman (CEO at Kita- an Insurtech focussing carbon insurance), in the panel.

_{photo: Insurtech Insights}

We started the panel discussion by defining ‘what Net Zero means?’ and the net zero strategies of the organisation of panellists. Then, we discussed opportunities for the insurance industry.

The focus of the discussion was on the following areas.

• New insurance products:
  • There is a need to address physical risks associated with climate change (rise in temperature, flooding, drought, wildfire, rising ocean levels, etc.).
  • The transition to a low-carbon economy will create new risks and liabilities that can be insured, such as risks associated with renewable energy installations, carbon capture and storage projects, and sustainable transportation.
• Investments: Pension funds are one of the largest categories of investment in the world. Insurance companies can invest in green bonds to finance low-carbon projects, such as renewable energy installations and energy efficiency upgrades.
• Climate risk assessment: Insurance companies can help businesses and governments assess and manage their climate risks, such as those associated with extreme weather events or changes in regulations and policies.
• Climate-related financial disclosure: As more businesses must disclose their climate-related risks and opportunities, insurance companies can help assess and quantify these risks, providing valuable insights to investors.
• Advocacy and engagement: Insurance companies can use their influence to advocate for policies and actions supporting the net-zero transition, including reducing emissions and increasing resilience to climate change.

We concluded the panel discussion with a view that Insurance companies are critical in supporting the transition to a net zero economy. Insurance companies can build a more sustainable and resilient future by developing new products and services, investing in low-carbon projects, and helping businesses and governments manage climate risks. By innovating in these areas, insurance companies can help to create a more sustainable future. They can also improve their financial performance and attract new customers.

Reference

_{Munich Re discontinues NZIA membership.}

_{Zurich Insurance becomes the second firm to quit the climate alliance.}

_{Hannover Re is the latest to leave Net-Zero Insurance Alliance.}

_{Tile Photo by Anita Austvika on Unsplash}