The global property and casualty (P&C) insurance industry is a massive 1.6 trillion dollar industry and a key part of the financial system offering financial protection and risk mitigation to individuals and businesses. As the recently established Net-Zero Insurance Alliance (NZIA) points out, the insurance… Read More »The carbon footprint profile of a P&C insurer
Claims Carbon Institute
On March 24th, Norrsken House and City of Stockholm hosted the first Stockholm Impact Meetup, an event to showcase the best of the Stockholm impact community. ClaimsCarbon was one of the seven exciting and impactful startups featured in the event.
Extreme weather gives rise to a growing carbon footprint through increased material and energy usage when things that have been damaged are repaired. One could see insurers, reinsurers, and state-run natural perils protection schemes take a stab at how to ensure that the negative climate impact from the extreme weather event itself is minimized. Tools such as sustainable claims settlement with greener repairs, correct pricing of carbon risk, and funding of carbon removal projects could be included in today’s (re)insurance schemes.
Due to the increased focus on scope 3 GHG emissions, more and more financial institutions have begun reporting their scope 3 emissions. That’s good news from a climate perspective, because in order to define meaningful reduction targets, one must first understand the emission sources. It is, however, also worth acknowledging that there are challenges involved in determining these emissions.
It’s important to distinguish between carbon offsetting and carbon removal, because they offer two very different outcomes when it comes to reaching net zero. Considering the climate crisis we’re facing, it’s clearly not enough that businesses just pay others to avoid emissions in their place, because emissions still enter the atmosphere and remain there. If we want to reach net zero fast enough, carbon removal is needed.
Only 15% of the respondents to the WEF annual risk report feel positive about the outlook for the world. In hindsight of Covid-19, almost all material risks have significantly increased in the perception of this influential group of decision makers.
It’s interesting to note that Climate action failure is now clearly the number one risk both in the medium and long term, whilst Extreme weather is on top of the list for the short term.
Given the challenges the world is facing in reaching net zero, it’s great to see that many large insurance companies are showing leadership and setting strong examples by disclosing ambitious climate goals.
Forerunners will be in a unique position to meet the needs of stakeholders and attract new customers through public disclosure of emissions, progress toward climate targets, and demonstration of environmental stewardship.
So far, most of the insurance industry’s work around climate and greenhouse gas emissions has focused on direct operations and investment portfolios. Next, insurers should establish baselines for their underwriting portfolios and supply chains, in which claims settlement plays a crucial role.
The insured emissions and the claims carbon footprint complement each other fittingly. The insured emissions are relevant for commercial insurance and it’s mainly a question of disclosing which type of companies and industries “you are willing to do business with”. The claims carbon footprint, on the other hand, works across both retail and commercial insurance and only focuses on the actual footprint of the insurance product itself.
As the demands for climate action intensify, insurers are also stepping up their game and trying to find pathways towards net zero. When we talk to people at insurance companies, their concerns and hindrances on this topic largely stem from a sense of lack of alignment. In this article we will briefly discuss each alignment challenge and propose some solutions on how to handle them.
ESG and sustainability in general is a broad topic covering much more than just climate related questions. We would argue, however, that of all the potential sustainability related ambitions, combating climate change must be the most important one. Our vision is that the global insurance industry will reach net zero emissions in 2040. Therefore, while we think it’s important and commendable that insurers adopt the Principles for Sustainable Insurance, we also recommend that insurers seek out and implement additional frameworks that have a more climate specific agenda.