Sustainability and Insurance: July Roundup
August 1, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. July’s topic: Data standardisation and reporting: the roadblock to sustainability
Read our summary and analysis below.
Analysis
Data standardisation and reporting: the roadblock to sustainability
Data collection is so often a problem in insurance, and sustainability is no exception. Insurers and brokers have each developed their own methods for collecting sustainability data, leading to significant additional work for clients each time they want to buy cover from different insurers. For insurers, time and energy is being spent developing surveys for sustainability data collection from scratch, with responsibility for data collection adding further to the workload of underwriters and brokers.
It is no surprise, then, that the majority of brokers are not engaging with clients about the climate credentials of insurers (according to a recent survey by Ecclesiastical Insurance). Where insurers do have sustainability data about their clients, it is often piecemeal, unaudited and inconsistent over time where methods of collection have evolved and changed. The inefficiency of data collection risks turning both insurers and insureds against measuring sustainability, contributing to a situation where both parties (plus brokers) are choosing instead not to have the difficult conversations about sustainability credentials.
Inaction is no longer an option, however, as requirements for sustainability reporting and disclosure continue to increase. The EU’s Corporate Sustainability Reporting Directive and UK Labour government’s pledge to mandate transition plans for UK-regulated financial institutions signal the trend towards greater accountability and transparency, and data collection will be fundamental to meeting these requirements.
In response, the Lloyd’s Market Association (LMA) and International Underwriting Association (IUA) have developed the Sustainability Data Standard: a new tool which aims to standardise the process of sustainability data collection. Currently the Standard includes 22 questions to guide the underwriting process, and this could evolve over time to inform the collection of more complex sustainability data. It is not new for the LMA to play a standardising role in the London Market, with its UK Consumer Wordings Guidance playing a role in promoting clearer insurance documentation for customers.
It remains to be seen the extent to which the Data Standard will be taken up by (re)insurers. Even if it streamlines the task of sustainability reporting for insureds, it is unlikely to solve all of the problems of data collection for the insurers. Concerns around transparency and credibility of sustainability data will remain.
Summary
Data standardisation and reporting
Trade bodies move to standardise sustainability data requests (Insurance Business)
Inconsistent sustainability data collection is a significant barrier for (re)insurers and a burden for clients. In response, the Lloyd’s Market Association (LMA) and International Underwriting Association (IUA) have developed the Sustainability Data Standard: a new tool which aims to standardise the process of data collection from clients. It comprises 22 questions to use during the underwriting process, streamlining data collection for the insurer and establishing consistency for the insured. As requirements for sustainability disclosure become increasingly stringent, the Sustainability Data Standard could become a central blueprint for data collection across the industry.
Brokers reveal what’s being skipped during client discussions (Insurance Business)
According to Ecclesiastical Insurance’s broker climate survey, a majority of brokers are not engaging with clients about the climate credentials of insurers. The study reveals that 77% of brokers do not see informing clients about insurers’ climate action to be their responsibility, despite the rise of net zero commitments among broker firms. Only 9% of brokers believe that clients prioritise an insurer’s environmental actions in their decision making and only 13% see it as their duty to advise clients on reducing their direct environmental impact. Brokers from this study appear to be more concerned with reducing their own direct impact, through limiting energy consumption or business travel, as opposed to through their client interactions.
New products
Insurance industry sees surge in clean energy and carbon capture patents (Insurance Times)
The insurance industry is seeing increasing numbers of patents being developed for clean energy and carbon capture products. For carbon capture insurance alone, patents have increased from 2009 in 2014 to 5143 in 2023. Companies are partnering to develop these new products and services, as shown by Zurich and Aon’s partnership to create a clean energy insurance facility discussed in last month’s newsletter. Overall, increasing numbers of patents are yet more evidence of carriers continuing to make sustainability initiatives a strategic focus.
Tokio Marine Kiln partners with Kita to provide political risk cover for developers of carbon credit projects (Tokio Marine Kiln)
Tokio Marine Kiln (TMK) have partnered with Kita, a provider of carbon credit insurance, to offer political risk insurance for carbon credits projects. The product will insure developers and investors against political risks including confiscation, nationalisation, political violence, forced abandonment, or license cancellation. The new cover will increase the viability of carbon credit projects in locations at risk of political uncertainty by offering more certainty for investors.
Sedgwick launches sustainable damage management solutions in the UK (Insurance Business)
Sedgwick, a claims management specialist, will be offering its sustainable damage management solutions in the UK. Their approach focuses on integrating sustainability efforts with damage management from the very beginning stages of recovery. As a result, this service helps clients balance the demands of immediate recovery with rebuilding for longer-term sustainability goals.
Electric vehicles and motor insurance
Motor repair network must accelerate EV focus to support Labour’s 2030 vision (Insurance Times)
The new Labour government may look to reintroduce the 2030 ban on selling new petrol and diesel cars. They committed to reintroducing the ban in their election manifesto, after the previous Conservative government delayed the ban to 2035. The push towards electric vehicles (EVs) as part of the UK’s net zero ambition will a significant impact on the motor insurance industry. Insurers will need to offer products which cover EVs and build capacity to handle EV claims, as well as responding to changes in ownership patterns, such as a rise in subscription-based or shared ownership models if the cost of EVs remains high.
Insurers investing in sustainability
AXA announces support for IDF’s resilience development initiative (Insurance Business)
AXA have announced their support for the Insurance Development Forum’s (IDF) Infrastructure Resilience Development Blueprint. Introduced by the IDF’s Infrastructure Task Force earlier this year, the Blueprint seeks to mobilise infrastructure investment from the insurance sector to boost climate change resilience in developing countries. Example projects span renewable energy, water, and waste, as well as social infrastructure such as education and housing.
CCR Re’s ESG asset portfolio surpasses €1bn mark (Reinsurance News)
French reinsurer CCR Re have seen robust growth in their ESG asset portfolio and recently surpassed the €1 billion threshold, having grown by more than 20% since 2022. CCR Re celebrates this growth as part of their commitment to sustainable and responsible investment, with assets entirely managed by signatories of the Principles for Responsible Investment. In addition to their investments approach, CCR have made changes in their operations, with significant progress made in reducing overall energy consumption.
Decarbonisation: carbon credits and renewable energy
SBTi finds carbon offsets mostly “ineffective” in highly anticipated report (Bloomberg)
The Science-Based Targets Initiative (SBTi), a leading regulator of private sector decarbonisation targets, have reported that ‘various types of carbon credits are ineffective in delivering their intended mitigation outcomes.’ The SBTi report is cautious with its conclusion, highlighting that the findings are specific to the 111 unique pieces of evidence they reviewed. The report is likely to cause a stir in the market for carbon offsets, especially since SBTi’s apparent embrace of carbon credits in April and amidst wider allegations of greenwashing in the industry from environmental groups.
Buffer pools: Why the carbon market needs a new approach to permanence and how insurance can help (CarbonPool)
Registry buffer pools are not delivering on their promise of long-term permanence for carbon credits, according to a new white paper from insurance provider CarbonPool and ratings agency Renoster. Buffer pools were designed to address risks to credit permanence, such as forest fires or insect infestations. Registries take a share of credits from each project and use these to compensate for reversal, functioning similarly to insurance. The white paper states that buffer pools are in danger of collapse because they are too small to account for possible losses, do not operate transparently, and do not cover longer-term risks of reversal when a project stops issuing credits and monitoring ends. They argue that registries should transition from buffer pools to in-kind insurance (where claims are paid in carbon credits rather than in cash) before buffer pools become the subject of damaging media criticism.
GCube launches new consortium (Insurance Business)
GCube Insurance, a renewable energy underwriter, have announced the formation of a new consortium to provide battery energy storage system (BESS) developers and asset owners with up to US $100 million of insurance capacity. The consortium is made up of six Lloyd’s syndicates who can offer the necessary claims-handling expertise and lead capacity for this rapidly maturing part of the renewable energy industry. Despite some large losses, the launch of GCube’s consortium demonstrates conviction from underwriters that the BESS sector is actively managing its risks.
About the author
Anna Gardner is a Consultant at Oxbow Partners who has worked on strategic engagements. She recently supported the design and implementation of a follow-only strategy for a global specialty insurer and writes about sustainability for Oxbow Partners’ publications. Anna has a particular specialism in carbon credits, having previously advised a provider of high-quality carbon credits on their communications strategy and led a delegation to the UN climate change conference at COP27. Anna holds a Masters degree in Geography from the University of Cambridge.
