A call for a systemic, positive and collective response to climate risk by the insurance industry
Maurice Tulloch, Chair of ClimateWise and Chairman, Aviva Global General Insurance and Chief Executive Officer, Aviva UK & Ireland General Insurance
28 July 2015
Last week, Aviva announced its five year strategic investment response to climate risk in the form of five commitments around low carbon investment generating carbon returns, embedding the risk into investment decisions, engagement, divestment where appropriate, and working with policymakers to reach a strong deal.
As the Chair of ClimateWise – the insurance industry leadership group on climate change convened by the Cambridge Institute for Sustainability Leadership (CISL) – and as CEO of Aviva UK & Ireland General Insurance, I was particularly pleased by this announcement. Likewise I'm pleased to see similar commitments being made elsewhere in the industry in the build-up to the Paris negotiations in November.
Increasingly the insurance industry is becoming more aware of the threat climate change presents and how an overall increase in societal exposure to natural catastrophes will impact insurers, regardless of whether those affected are directly insured or not. In other words, the resilience of insurance is inherently tied to that of the society within which it exists.
Given the exponential increase in exposure to climate change, insurers can no longer simply rely on a strategy of assessing and repricing climate risks in perpetuity as impacted markets will ultimately become uninsurable. As an industry, we need to become more systemic, positive and collaborative in our response.
By systemic I mean that the industry must engage climate change in ways that truly reflect its complexity and interconnectedness; we must be more collaborative because success can only be achieved if the industry becomes united in its response and is open to meaningful partnerships with other stakeholders to leverage change more widely.
Whilst divestment of fossil fuel assets could support a switch to a low carbon economy, it is important to recognise the role investment portfolios play in insurance. The unintended consequence of wholesale disinvestment needs to be thought through, and a considered, orderly transition seems to me to be more appropriate.
Indeed a better way for the insurance industry to use its investment portfolios is the green bond market. Aviva holds a number of green bonds across a range of funds, and very much welcome the development of the Climate Bonds Standard.
ClimateWise, for its part, is actively exploring ways the insurance industry can contribute to the response to climate change in ways that are societally focused, proactive and based on meaningful collaborations. We have already undertaken studies to increase the resilience of cities, make claims more sustainable, support adaptation opportunities and how insurance can play its role in sustainable development. We have recently completed the last of a series of collaborative roundtables in partnership with the Prudential Regulatory Authority, to understand the material impact climate change will have on insurer's investment portfolios.
Looking forward, ClimateWise is about to embark on a wide array of research topics that include how insurance can realign investments in ways that can also deliver underwriting benefits, how the industry can become more proactive in moving from risk assessment to risk management and how insurance can be sustainably rolled out across emerging markets.
As we seek to become more systemic, positive and collaborative in our response to climate change, I remain confident of the potential contribution our industry can make to the challenges society faces, to more of our peers making similar commitments to ours and to the future work that will be undertaken by ClimateWise and its membership base.