Insurance

The polluter should pay and that must apply also to extreme weather

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.

Scope 3 calculation challenges

Challenges when calculating scope 3 emissions

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.

Do your best, remove the rest

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.

Forerunners in the insurance industry are taking climate action

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.

Insured Emissions and Claims Carbon Footprint

Insured Emissions and Claims Carbon Footprint

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.

Insurers asking for alignment

Insurers ask for alignment

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.

Sustainable insurance must include climate actions

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.

Key areas where insurers can make a climate impact

We fully agree with BCG’s assessment that insurers have a great opportunity to become leaders in the climate fight due to their expertise in assessing and taking risk. We were also happy to see that they had identified several impact opportunities for insurers, which largely overlapped with the opportunities we’ve described previously. To seize the opportunity, insurers must address a number of key questions and formulate a compelling climate strategy that cuts through and crystallizes – for all stakeholders – what the company aims to do.

Deepwater Horizon Offshore Rig Fire

Large losses carbon footprint

There is an obvious opportunity in settling large claims in a carbon efficient manner, focusing on using low emission materials and technology. Reinsurers could play an effective role in motivating their customers, the insurers who actually settle these claims, to reduce carbon footprints.

Why we started Claims Carbon Institute

Besides being “the right thing to do”, we believe that having a laser sharp focus on GHG emissions across the entire value chain makes perfect business sense for insurance companies. The early adopters will be in a unique position to meet the needs of stakeholders and attract new customers through public disclosure of GHG emissions, progress toward GHG targets, and demonstration of environmental stewardship. Our mission is to help the insurance industry decarbonize insurance.