Sustainability and Insurance: October Roundup
November 8, 2024
Welcome to our monthly roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. This month’s topic: What does a Trump victory mean for sustainability and (re)insurance?
Read our summary and analysis below.
Analysis
What does a Trump victory mean for sustainability and (re)insurance?
In a consequential election for climate action in the United States and globally, Donald Trump has secured a second term in the White House and will be empowered further by the Republicans retaking control of the Senate. In this month’s analysis we set out some of the possible impacts of the election results on sustainability and (re)insurance.
Evidence for how Trump would approach sustainability issues is apparent in the actions of his first administration and the last two years of the Republican-led House of Representatives.
Globally, the industry is cautious about the Trump administration’s approach to international co-operation. Trump famously withdrew the US from the Paris Agreement, stating that climate change mitigation would ‘undermine’ the US economy. This decision faced criticism from some of the largest global reinsurers, including Munich Re and Swiss Re. Biden brought the US back into the Paris Agreement on his first day in office, but it seems likely that Trump would once again withdraw. As the world’s largest and most powerful economy and the second-largest emitter of greenhouse gases, this would be a significant blow to the Agreement and put economies and societies at a greater risk of dangerous levels of warming.
Domestically, the Trump administration is likely to put the brakes on the push for climate-related disclosures to which public (re)insurance companies are subject. The Securities and Exchange Commission’s (SEC) adoption of rules to enhance and standardise climate-related disclosures earlier this year could be repealed or otherwise limited. For instance, Congress could limit the amount of funding the SEC receives to enforce climate disclosure rules.
Where national regulation overlaps with state-level regulation, the picture is less clear. For example, California’s SB 253 and SB 1305 regulations, which focus on emissions disclosures and voluntary carbon market disclosures, may still require (re)insurers operating in the state to enhance their climate reporting, regardless of changes at the national level.
During the campaign, the Republican Party announced their plans to end restrictions on oil, natural gas and coal. With more American gas and oil production, cheaper fossil fuels could make renewables look less competitive. In this way, Trump’s pro-fossil fuel stance may shift the dial and reshape (re)insurers’ energy portfolios in the US (especially for those companies without exclusions on the types of energy projects they will insure).
In our view, the ideological shift signalled here is just as important as the nitty-gritty details of legislation. Broadly, Trump’s “America First” agenda frames sustainability as a burden on Americans. Language of sustainability, ESG, and even climate change, are likely to lose some of their traction in the US and possibly beyond. The ideological momentum of the energy transition may slow.
We see Trump’s election increasing divergence across the Atlantic when it comes to sustainability agendas. At present, the direction of travel in Europe is still very much towards increased regulatory pressure and disclosure, with regulations like the EU’s Corporate Sustainability Reporting Directive already in train. (Re)insurers operating across different jurisdictions will have some strategic decisions to make as they face this uncertainty, ranging from global emissions reporting which meets the strictest standards set in Europe, through to a ‘wait and see’ approach that meets the minimum requirements in geographies where regulations are moving slower or even being reversed.
Despite the ideological shift, a Trump victory does not make the problems of climate change go away. If renewables are the cheapest source of electricity, they will still make financial sense for businesses and individuals. If hurricanes and other natural disasters continue to devastate communities, the need for greater protection and resilience will continue and insurance will play a pivotal role.
Language may be tempered and ideologies diverge, but the reality of climate-related risks persists. (Re)insurers cannot afford to ignore this reality, no matter who is sitting in the White House.
Summary
UK Budget
Insurance industry points out what’s lacking in Autumn Budget 2024 (Insurance Business UK)
On Wednesday 30th October, UK Chancellor Rachel Reeves announced the 2024 Autumn Budget: the Labour party’s first Budget for 14 years. Insurance was only mentioned twice (excluding references to National Insurance); first, in relation to a future report on the Government’s contingent liabilities, and second, in relation to small businesses being able to access the ‘insurance and finance they need.’ Some commentators have criticised the budget for underplaying the potential role for insurance in Labour’s target to rebuild Britain. For example, industry players expressed disappointment that the Budget did not launch a consultation on a regime for captive insurers.
UK Budget: Rachel Reeves makes no mention of IPT in speech to Commons (Insurance Times)
The Autumn Budget did not mention any change in insurance premium tax (IPT). IPT is an indirect tax on consumers and businesses added to the price of an insurance product. Insurance executives have been pushing for the chancellor to address the financial burden of the IPT, with Biba calling for the Government to cut the headline rate of IPT from 12% to 10%. Given the increase in employer National Insurance contributions set out in the budget, some commentators fear that small businesses may cut back on insurance to try and manage rising operational costs.
Developments in carbon credit insurance
Marsh, We2Sure launch facility to tackle carbon credit fraud risks (Insurance Business UK)
We2Sure, a specialist in carbon credit insurance, have teamed up with global broker Marsh to launch an insurance facility helping organisations manage the risks related to carbon credit certificate fraud. The new facility is backed by Sompo, Talbot and Brit, and provides coverage for risks resulting from counterfeit certificates, non-existent projects and theft. Buyers can also access We2Sure’s assessment of the validity of certificates before purchase.
Lockton partners with BACX and CFC to launch first exchange-traded, insured carbon credit transactions in Latin America (Lockton)
The first exchange-traded, insured carbon credit transaction in Latin America has been launched by a collaboration between Lockton, CFC, and BACX (Argentina’s carbon trading platform). The collaboration seeks to offer comprehensive insurance coverage for registry verified voluntary carbon credit transactions conducted through BACX, including risks of invalidation, cancellation and political fraud. This significant advancement for carbon trading in Latin America is the first step to driving market confidence and encouraging wider participation across the region.
Oka unveils lineslip to bring insurance capacity to global carbon markets (Reinsurance News)
Carbon insurer Oka has introduced a lineslip for its Corresponding Adjustment Protection solution: a first-of-its-kind policy covering voluntary carbon credits being traded in compliance markets. Underwritten by Oka’s Lloyd’s Syndicate 1922, the policy protects developers of carbon credits and their clients if a host country does not apply the required corresponding adjustment to the issued credits. The lineslip introduces capacity from other Lloyd’s syndicates, including Hiscox and Apollo, signifying commitment from major players to the scaling up of global carbon markets.
Emerging risks
AXA Future Risks Report 2024 (AXA)
AXA’s 11th Future Risks Report explores the potential impact to society of emerging risks in the next five to ten years. It asks 3000 experts from 50 countries and 20,000 non-expert individuals from 15 countries to rank the top ten emerging risks, in their view. According to both experts and the general population, the most severe emerging risks are climate change, geopolitical instability, new security threats and terrorism, and cyber security risks. Climate change is the highest ranked risk across all geographies, remaining in the top spot it has held since 2021.
Insurance for nature
National Nature-Positive Pathways to Guide Policy and Private Sector Action (Aviva & WWF)
Aviva and the World Wildlife Fund (WWF) released a joint report pushing for greater collaboration between the private sector and UK government to develop ‘nature-positive’ strategies beyond net zero to address the climate crisis and degradation of nature. The report advocates for the creation of nature-positive sectoral pathways based on the UK Climate Change Committee’s Net Zero Pathways, giving businesses guidance for meeting national and international level environmental ambitions. It argues that these pathways would increase policy coherence across sectors and catalyse private sector innovation and investment.
The journey to net zero
Emissions Gap Report 2024 (UNEP)
The United Nations Environment Programme’s (UNEP) Emissions Gap Report 2024 considers the scale of greenhouse gas emissions reductions needed in the next round of Nationally Determined Contributions (NDCs), due for submission early next year in advance of COP30. The Report finds that it remains possible to stay within 1.5 degrees of warming, however this would require emissions cuts of 42% by 2030 and 57% by 2035, with the largest reductions made by the high-emitting nations of the G20.
Generali, a new step forward in the fight against oil and gas expansion (Insure Our Future Global)
Italian insurer Generali announced that it would no longer insure risks associated with oil and gas expansion, including new liquified natural gas (LNG) terminals and gas-fired power plants. Having already committed to exclude underwriting upstream oil and gas expansion, Generali is now the first insurer globally to exclude the entire oil and gas value chain for energy companies it finds to be ‘transition laggards.’ NGO network Insure Our Future welcomed the announcement but recognised its limitations, highlighting exemptions for companies developing new oil and gas infrastructure while still planning to reach net zero by 2050.
Underwriting the Transition (Lloyd’s Market Association)
In their report Underwriting the Transition, the Lloyd’s Market Association (LMA) discuss the implications for underwriters of the transition to a low-carbon economy. Given the broad scope of the transition, the report focuses on key levers and challenges for first-party property damage in the transportation, energy and construction sectors. Recognising that the transition is already happening around us and the lack of historical data available for new technologies, the report advocates for participation in industry and regulatory working groups to ensure that underwriters can enable their insureds to participate in the transition and drive emissions reductions.
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.
