Sustainability and Insurance: February Roundup
March 1, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. February’s topic: Carbon credits, decarbonisation and parametric insurance
Read our summary and analysis below.
Analysis
In our last newsletter we discussed the opportunity (as well as burden) that ESG and sustainability can create for (re)insurers. This month, our analysis centres on three key opportunity developments:
- Carbon credits
- Decarbonisation initiatives
- Parametric insurance
On carbon credits, we continue to see this as an exciting space. Only this month, CarbonPool – the first insurer with a carbon credit balance sheet – has completed a $12m seed round and aims to address exactly this issue, underwriting the carbon credit market. This, along with other initiatives we highlighted in January, underscore the industry’s recognition of the growing potential in the carbon market. As discussed in our last newsletter, we co-authored a comprehensive report delving into the intricacies of carbon markets and its growth mechanisms (read the report here).
Carbon credits form part of broader decarbonisation strategies, which continue to move at pace at some of the leading players in the space. Major insurers (SCOR, Aviva, and Axa, to name a few) have recently made announcements on their approach, and how they are steering their portfolios and operations towards sustainability. Initiatives recently announced include collaboration with partners and suppliers to establish ESG targets to reduce their carbon emissions. For some (re)insurers, we are starting to see a growth in the role of underwriters decarbonisation strategies, for example debating how to best tackle high-emission sectors and how to act as a steward to support insureds’ own decarbonisation journeys.
On parametric insurance, international governments are becoming increasingly involved in emerging economies to bridge protection gaps – for example the US Government has just announced an $11.7m partnership with ARC to expand parametric cover in Africa. We are also seeing insurers explore diverse operating models to ensure consistent global parametric strategies – Munich Re has established a dedicated global parametrics team, both to standard risk pricing and leverage expertise of other business units.
Despite a sometimes gloomy outlook on ESG and sustainability initiatives that are more compliance-oriented, we are seeing more interest in underwriting opportunities with major players in the insurance sector making substantial bets on specific opportunities. It remains to be seen which initiatives will pay off, but one thing is certain: success is unlikely for those completely on the sidelines.
The competitive landscape is evolving rapidly, and those embracing and actively participating in the industry’s sustainability opportunities are going to reap the rewards as the market matures, both in terms of financial gains and a positive impact on the planet.
Summary
Carbon opportunity
Carbon credit insurer CarbonPool raises $12m in seed round (Startup Ticker)
Swiss startup CarbonPool secures US$12 million to become the first insurance company with a carbon credit balance sheet. It offers straightforward carbon credit insurance with claims paid in-kind. The funding, co-led by Heartcore Capital and Vorwerk Ventures, supports CarbonPool’s mission to underwrite carbon credit markets amid global efforts to achieve net-zero emissions by 2050.
Decarbonisation
SCOR launches offshore renewable energy consortium (Insurance Business)
SCOR has launched an offshore renewable energy consortium with Acrisure Re, increasing its capacity to over US$180 million. The move aligns with SCOR’s commitment to support clients in the energy transition and decarbonisation efforts. The consortium responds to the rising investment in offshore renewable projects and signifies Lloyd’s market dedication to collaboration and lead capacity provision in a growing market. Sustainability is central to SCOR’s strategy, contributing to partners’ ESG goals. The initiative reflects Lloyd’s market collaboration to insure the transition towards a more sustainable future.
Aviva Canada launches a program to reduce supply chain emissions (Canadian Manufacturing)
Aviva Canada launched Net Zero Supplier Accelerator program that helps its suppliers to set and achieve science-based targets for reducing their greenhouse gas emissions. The program, which is aligned with the Science Based Targets initiative, provides free access to training, education and resources to measure and report data aligned with international disclosure standards. The program is part of Aviva Canada’s net zero ambition by 2040.
High-emissions ships risk losing insurance cover, warns underwriter (Trade winds)
Lloyd’s of London’s Atrium Underwriters suggests that the insurance industry could encourage decarbonisation in the shipping sector by pulling cover from ships with poor Carbon Intensity Indicator (CII) ratings. The underwriter cites the increasing pressure from regulators, investors and clients to align with the Paris Agreement goals and reduce the carbon footprint of the maritime sector.
Climate Tech for Industrial Decarbonisation: What role for insurers? (Geneva Association)
The Geneva Association released a report on role of insurers in advancing the commercialisation and wide-scale deployment of new climate technologies for industrial decarbonisation. Currently there is a significant annual investment gap of USD 7–9.2 trillion required to fund the transition to a net-zero economy by 2050. The report notes challenges like data scarcity, regulatory gaps, and highlights potential opportunities for new markets and products.
ESG Metrics and solutions to help meet sustainability goals
Briefing: ESG metrics plan requires careful thought to navigate complex challenges (Insurance Times)
Specialty insurer Chaucer has called for standardised ESG metrics to measure the performance of insureds to avoid errors, in efficiencies and frustrations among customers. The lack of a common standard makes it complex for insurers to understand and quantify risks related to ESG issues. Standardised metrics would also reduce the burden on brokers and clients who often fill in different questionnaires from various insurers. However, the challenge remains whether a single set of metrics can effectively capture diverse ESG activities and responsibilities.
Parametric Insurance
ARC unveils $11.7mn collab with US govt to expand parametric coverage in Africa (The Insurer)
African Risk Capacity Limited (ARC Ltd.) and the United States Government partner with an $US11.7 million investment to enhance food security and climate resilience in Africa. The initiative focuses on increasing access to parametric insurance for smallholder farmers, enabling rapid payouts based on pre-agreed triggers. The project aims to assist African governments in managing climate risks and customising risk models, while also promoting parametric insurance adoption by embedding parametric insurance in existing climate adaption frameworks.
Munich Re: Dedicated parametrics team gives us focus and consistent risk appetite (The Insurer)
Munich Re has formed a dedicated global parametrics team, focusing on natural catastrophe solutions. The team, with diverse backgrounds including geoscientists and economists, aims to streamline operations, ensuring a consistent risk appetite and global strategy for structuring and pricing policies. Previously decentralised, parametrics will now centralise responsibilities, maintaining collaboration with existing business units.
ESG Commitments
BIBA reaffirms ESG commitment (Insurance Business)
Graeme Trudgill, CEO of the British Insurance Brokers’ Association (BIBA), has signed the 2024 ESG policy, reaffirming BIBA’s commitment to environmental, social, and governance principles. The policy, part of BIBA’s 2024 Manifesto, focuses on good governance, responsible sourcing, mental wellbeing, workplace diversity, equity, inclusion, and environmental footprint reduction. Trudgill aims to solidify BIBA’s ESG efforts in 2024, demonstrating dedication to sustainable insurance and contributing to a more sustainable future. The annual refresh reflects BIBA’s ongoing commitment to progress in these areas.
