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Climate change and the insurance industry: the legacy of 2015

Climate change and the insurance industry: the legacy of 2015

Tom Herbstein, Senior Programme Manager, ClimateWise

27 November 2015


As things stand, 2015 is squaring up to become a landmark year for action on climate change. Already we have seen the signing in March of the UN Sendai Framework for Disaster Risk Reduction that recognised the state as having the primary role in reducing disaster risk, but also placed responsibility with other stakeholders, such as the private sector. Then, in September, political leaders gathered in New York City to launch the United Nations Sustainable Development Goals, framing the global response to society’s biggest challenges over the next 15 years, including hunger, poverty, health and threats to the environment. Finally, the year culminates with COP21 in December, when global leaders meet again in Paris, where it is hoped a clear international framework will be delivered to help the world avoid the threat of climate change.

While these agreements continue to reinforce the role of the state in the transition to a low carbon, climate-resilient future, more than at any other time the contribution of non-state actors is being emphasised. In particular, the role of progressive businesses will be crucial in driving the innovation, change and cultural shifts necessary for 2015 to live up to the legacy it promises.

However, a new normal will depend on achieving change across industries, not just individual businesses. This will require meaningful collaborations to emerge between a variety of private and public stakeholders, working across geographies and targeting an array of different, yet often overlapping, challenges. But collaboration is rarely easy. It requires competitors to work together or for sensitive relationships between regulators and regulated firms to be managed. Collaboration introduces uncertainties such as competition laws, free-riding or threats to intellectual property.

Despite these challenges, many progressive businesses have not been deterred from forging ahead in a quest to define and realise a new normal in response to climate change. They are aware that future success depends on collaborations, regardless of the challenges.

This is where the origins of ClimateWise lie; a group of leadership companies collectively concerned that the traditional insurance business model is under threat from climate change. ClimateWise is a collaborative initiative that both invests in action research – to support a wider industry response – and requires its members to voluntarily commit to annual assessments as they integrate the six ClimateWise Principles into their business activities.

Seven years on, ClimateWise has grown to more than 30 members, and like most collaborations, many are at different stages in their understanding and response to climate change. Yet this is exactly the role that initiatives such as ClimateWise must play: where those more advanced in their journey support those just setting out. This relies on the belief that converting progressive business models into a new normal is dependent on the entire insurance industry embracing change. The annual review of the ClimateWise Principles therefore provides a unique insight into how a group of leadership companies are grappling with the climate challenges they face.

The global agreements signed over the course of 2015 mean that demand for yet more progressive thinking and responses by the insurance industry are inevitable. For example, both investors in, and regulators of, insurance are becoming increasingly concerned. Thus insurers actively considering, responding to and disseminating their response to climate change are highlighting their commitment to maintaining a resilient and therefore profitable business over the long term.

As 2015 continues to square up to becoming the year the world shifted gear on climate change, 2016 is likely to call on progressive business, and the insurance industry in particular, to step up and play its pivotal role as society’s risk manager.

 


 First published on Insurance Day (subscription required).

About the author

Tom Herbstein 100x100px

Tom Herbstein is the Senior Programme Manager of ClimateWise, an industry initiative of global insurance companies who share a common concern and a willingness to help identify, and realise, a collaborative response to climate change. ClimateWise is facilitated by the Cambridge Institute for Sustainability Leadership.

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Articles on the blog written by employees of the University of Cambridge Institute for Sustainability Leadership (CISL) do not necessarily represent the views of, or endorsement by, the Institute or the wider University of Cambridge.