15 June: What’s going on in ESG and insurance?
June 15, 2023
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. The week’s topic: The emerging property protection gap.
Read our summary and analysis below.
Analysis
The emerging property protection gap
North America had one of the smallest protection gaps in the world over the past 10 years (44% vs. 64% in Europe and 80%+ in Asia & S America) according to SwissRe’s sigma report.
With many of the changing weather patterns, it looks like this protection gap is only going to grow.
We’ve seen both State Farm and Allstate, both major US insurers, halt sales of home insurance in California due to increasing wildfire risk.
This mirrors what we’ve seen in Florida where 50,000 homeowners risked non-renewal of their home insurance due to increasing hurricane risk – and Europe where 75% of flood risks remain uninsured.
The question is what can or will be done. Many have raised the importance of private and public sector collaboration to address the protection gap and build resilience against catastrophes. These are important measures and undoubtedly will play an important role in responding to these challenges.
But isn’t tackling the root cause of climate change the real solution? Experts are clear that decreasing emissions is a key part of the fight against climate change.
When in the US, there is such hostility to insurers playing their (small) role in collaborating (as shown by the recent exodus of 13 insurers from the NZIA), there is a contradiction at the heart …
Summary
Climate resilience and risk management
Climate Resilient Development Bond proposed by Guy Carpenter (Reinsurance News)
Guy Carpenter have outlined a proposal for the introduction of a Climate Resilient Development Bond, a new re/insurance structure designed to address climate risk at scale. In a recently published briefing document, the reinsurance broker outlines a CRD Bond structure based on a new operating model which aims to facilitate improved financial resilience and loss prevention for climate change-related weather risks. The outline proposes a mix of community-based insurance, stacked investment, and advanced funding for loss prevention measures. The goal is to provide community-wide coverage, with municipalities able to secure cover from an insurer on a multi-year basis.
AXA unveils new climate risk proposition with Capco (Insurance News)
AXA Hong Kong and Macau has announced a partnership with management consultancy Capco to offer a new comprehensive climate-related risk management and reporting solution for financial institutions and other organisations. This new climate risk proposition is part of the insurer’s response to increasing mandatory ESG reporting regulatory requirements and is a solution for corporates and firms looking to fulfill their climate disclosure obligations across their industries.
The Global Resilience Index Initiative secures new funding to address climate risk data challenge (ESG Insurer)
The Global Resilience Index Initiative has secured new funding to further provide global, open and consistent climate risk data to help governments and financial institutions scale up adaptation, resilience and loss and damage finance.
100+ underwriters help UNDP insure FSO Safer operation (Reinsurance News)
More than 100 underwriters have been involved in the successful binding of insurance coverage for the FSO Safer operation, enabling the United Nations (UN) to proceed with an emergency ship-to-ship transfer to avert an oil spill that would amount to one of the world’s largest man-made environmental disasters in history.
Led by the United Nations Development Programme (UNDP), the FSO Safer operation involves the transfer of the oil to a replacement vessel and the scrapping of the vessel at a green salvage yard. It is highly complex and involves a range of environmental, geopolitical, financial and humanitarian risks.
Emerging property protection gap
State Farm halts sale of new home policies in California due to wildfires (The Guardian)
The insurance giant State Farm, America’s biggest car and home insurer by premium volume, will halt the sale of new home insurance policies in California, citing:
- Increasing frequency and severity of natural disasters in California, which have led to higher insurance claims and risks for insurers.
- Historic increases in construction costs outpacing inflation
- Challenging reinsurance market
The decision by State Farm highlights the challenges faced by insurance companies in managing and pricing risks associated with climate-related events. Additionally, it may have implications for homeowners in California who may need to seek coverage from alternative insurers.
Allstate stops selling homeowners insurance in California (Forbes)
Allstate, a major US insurance company, has also made the decision to stop selling homeowners insurance in the state of California.
Climate action and accountability
Senate budget committee launches investigation into major insurers on climate action (ESG Insurer)
The US Senate budget committee has launched an investigation into how major insurers evaluate climate-related risks and underwrite major fossil-fuel projects. The committee sent a letter to the CEOs of AIG, Chubb and Travelers, among others, demanding details on climate-related lobbying efforts. It questioned how the industry evaluates climate-related risks, decides to invest in or underwrite fossil fuel expansion projects that drive such risks, and prices policies insuring such projects. In a statement announcing the launch of the investigation, Senator Whitehouse said “any new fossil fuel expansion is incompatible with our climate goals and economic stability”.
Activist group slams US carriers for rejecting climate and human rights resolutions (ESG Insurer)
Environmental activist network Insure Our Future has criticised US insurance giants Chubb, Travelers and The Hartford for failing the 2023 proxy season’s “climate test” at their respective annual general meetings. The campaigners said the trio of US insurers failed to adequately address climate and human rights-related risks associated with underwriting, with all resolutions brought by activist shareholders unable to receive majority support.
This warning is to be particularly heeded by US insurers, who continue to be criticised for lagging behind peers in the P&C sector who are making the move away from fossil fuel underwriting. Travelers and The Hartford currently have no public commitments to cease underwriting new oil and gas projects.
EU watchdogs see greenwashing across the bloc’s financial sector (Reuters)
EU watchdogs have reported that banks, insurers and investment firms across the European Union continue to make “misleading claims” about their sustainability credentials to investors. The European Banking Authority (EBA) said analysis of greenwashing in the EU since 2012 shows a clear increase in the total number of potential cases across all sectors, including EU banks.
The European Securities and Markets Authority (ESMA) said in its report, “Cherry-picking, omission, ambiguity, empty claims (including exaggeration), misleading use of ESG terminology such as naming and irrelevance, are seen as the most widespread misleading qualities.” The EU is already cracking down on greenwashing as it finalises mandatory ESG disclosures for companies.
NZIA exodus
Why there’s reason for optimism despite NZIA turmoil (Insurance Business)
Growing anti-ESG sentiment has led to multiple exits from the Net Zero Insurance Alliance (NZIA), shrinking from 30 members to 17. Speaking to Insurance Business, Lisanne Sison, managing director of Gallagher’s ESG and ERM (enterprise risk management) practice, said the NZIA exodus signals that insurers must take a more considered approach to their ESG goals.
“The collective is being impacted; that part is not ideal. But I don’t think that means ESG is dead,” she continued. “I think the way we need to approach ESG needs to be more thoughtful in terms of how we would tackle it as an entire ecosystem.” The Gallagher MD believes the industry will still need to collaborate on climate issues, but the shape and form of that collaboration remains to be seen.
About the authors
Eleanor Ewen is a senior consultant at Oxbow Partners. Her work has included undertaking a culture review for a Bermudian reinsurer and building a ‘break-out strategy’ opportunity for a UK retail insurer. Alongside this, she helped draft a ground-breaking report on ESG which launched in Bermuda.
