November 2015 – The 2015 independent annual review of the six ClimateWise Principles shows improved scores for members of the insurance industry leadership group. Progressive insurance companies are considering their exposure to climate risks while also developing their role as societies' risk managers.
Against the backdrop of climate change negotiations in Paris at the end of 2015, and the significant role that business can play in response to climate change, the ClimateWise initiative and the strong performance of members against the ClimateWise Principles has never been more relevant. Since last year’s independent review, the interest of investors and regulators in the management of climate risk by the insurance industry has continued to rise. Most notably, the UK’s Prudential Regulation Authority (PRA) recently published its findings from a review of the impacts of climate change on the UK insurance sector – ranging from the more obvious physical impacts to the risks and opportunities of transition to a low carbon and the potential for liability. The G20’s Financial Stability Board has also proposed the creation of a disclosure taskforce on climate-related risks, an initiative closely aligned to the ethos of ClimateWise and its members.
ClimateWise is a voluntary leadership group driving an insurance industry response to the transition to a low carbon, climate-resilient economy. The 2015 review continues to demonstrate how members are both managing the risk implications to their business and developing their role as a key risk manager to societies and economies.
In order to manage their exposure to climate risk, members are integrating climate change into risk analysis and underwriting decisions. They are increasingly considering their exposure to climate risk in investment portfolios and the need to move capital away from sectors inherently at risk from the transition to a low carbon, climate resilient economy, as well as companies or regions not taking adequate steps to manage their exposure. Members are also developing their role as climate risk managers to societies and economies by innovating in terms of product development and sustainable claims processes.
2015 was the second year of review under the updated ClimateWise methodology. Member scores across the ClimateWise Principles saw an average increase of 51 per cent in 204 to 56 per cent in 2015, although the detail suggests a set of leaders are raising the performance bar. In 2015 five members scored over 70 per cent (with one over 80 per cent), a significant increase from none in 2014.
At the individual ClimateWise Principle level, no notable decreases in performance were seen across any ClimateWise Principle or sub-principles. Significant increases were seen across Principle 1 (Lead in risk analysis) and sub-principle 3.4 (Under-insured markets).
This report describes the latest climate change context for the insurance industry including the implications of climate change for investment decision making. It presents perspectives from both investors and regulators as to the role voluntary disclosure plays in communicating an insurer’s exposure to climate risk. It also reviews member performance across the ClimateWise Principles, highlighting case studies of innovation and good practice throughout.