This week’s discussions at COP26 have positioned finance – and within that insurance – as the key lever that can help facilitate the transition towards a decarbonised, climate-resilient world.

Government commitments may not be as robust as would ideally be the case, but the growing momentum within the private sector, coupled with rising public awareness of the need to act, creates a platform on which societal transformation can begin to take place.

Over recent days the important role the industry can play in building resilience has been a recurring theme within several discussions this week, and is now widely recognised within the public sector.

Laying the foundations for a more resilient world

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As Eric Usher, who heads the UN Environment Programme Finance Initiative, said this week, insurance has a pivotal role to play.

“The insurance industry plays a three-part role as risk managers, insurers and investors which uniquely positions the industry to help support the building of climate-resilient economies,” he said.

Scaling up the wide ranging initiatives which have been launched to build societal resilience remains a challenge, but the creation of tools such as the Global Risk Modelling Alliance, launched by the Insurance Development Forum earlier this week, will help facilitate this process.

On Monday, the COP26 presidency programme will focus on addressing loss and damage – an area that sits at the heart of the insurance industry’s expertise.

In vulnerable countries, where insurance is not prevalent, extreme events can set back development and reinforce poverty. Support for risk pooling and transfer mechanisms has long been held by these countries and has been a feature of UN Framework Convention on Climate Change talks for two decades.

While insurance is unlikely to prove a solution for slow onset events, such as sea level rise, it has a vital role to provide in helping manage the risk of extreme events (as well as reducing that risk through helping facilitate adaptation action).

Look out for Monday’s edition of The Insurer’s COP26 daily bulletin which will provide an update on some of the key discussions of the day.

In today’s news we report on an €18mn commitment from the German government to help establish a Premium Support Facility for African governments and humanitarian agencies wishing to purchase climate-related insurance through African Risk Capacity.

Today has also seen the launch of Axa XL’s coastal risk index, a tool created to integrate the protective benefits of coastal ecosystems into insurance risk models.We also round up some of the key developments from an insurance perspective of the first week of discussions in Glasgow.

“The insurance industry plays a three-part role as risk managers, insurers and investors which uniquely positions the industry to help support the building of

climate-resilient economies”Eric Usher, head of the UN Environment Programme Finance Initiative

Scott Vincent News editor, The Insurer

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Axa XL has today launched its Coastal Risk Index (CRI) – a tool it is hoped will help build the case for nature-based solutions as a tool for societal resilience.

The tool compares scenarios for coastal flooding with and without the impacts of coastal ecosystems such as coral reefs and mangroves.

Chip Cunliffe, biodiversity director at Axa XL, said mangrove and coral reef ecosystems are key to supporting risk mitigation and adaptation efforts against the impacts of climate change. “Calculating the resilience value of ecosystems is therefore critical for the lives and livelihoods of those communities on the frontline. With this greater knowledge, the CRI will also lead to more robust strategies to protect and restore these natural assets around the world.”

Axa XL said the tool models coastal flooding at different levels of severity based on current conditions and projections for 2030 and 2050, quantifying the impact of possible future climate scenarios on sea level rise and storm surge.

The tool also calculates the number of people and assets at risk in different scenarios, with and without ecosystems present. Global mangrove maps also quantify the flood reduction benefits of restoring recently lost mangroves, Axa XL said.

Speaking at the launch of the CRI in Glasgow, Axa XL’s group chief communications, brand and sustainability officer Ulrike Decoene said: “The CRI will enable the insurance community to more accurately price risk and help private and public sector clients better understand their exposure to coastal flooding, ultimately helping to build economic and social resilience.”

Axa XL developed the tool in partnership with IHE Delft in the Netherlands, the University of California and the Government of Canada through the Ocean Risk and Resilience Action Alliance.

Axa XL said it has also introduced additional safeguards to detect illegal fishing for all fishing vessels and refrigerated cargo vessels that it insures, as well as confirming its membership as a signatory of the Sustainable Blue Economy Finance Principles.

Axa XL launches Coastal Risk Index

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The German Government has committed €18mn ($21mn) to subsidize the cost of disaster risk insurance for qualifying African Risk Capacity (ARC) member states.

Speaking at the COP26 climate talk in Glasgow, Germany’s parliamentary state secretary for development aid Maria Flachsbarth, said the commitment will help

establish a Premium Support Facility for African governments and humanitarian agencies wishing to purchase climate-related insurance.

The ARC risk pool is an African Union initiative led by 35 member states. It provides insurance for droughts and tropical cyclones and offers governments the opportunity to plan and purchase cover that can provide rapid payouts in the event of a qualifying loss event.

Since 2014, 62 policies have been signed by Member States for cumulative insurance coverage of $720mn for the protection of 72 million vulnerable populations in participating countries.

The planned Premium Support Facility will be designed to respond to more frequent and severe extreme weather events driven by climate change in vulnerable African countries.

This new funding will subsidize insurance premiums, decreasing in future years as countries and organisations are able to take over the costs using their national budgets and long-term sustainable financing.

It comes as many African governments have severely constrained budgets following the Covid-19 pandemic, and humanitarian agencies are struggling to meet demand for aid.

Christian Krämer, member of the management committee at KfW Development Bank said Germany has been a long-standing supporter of ARC.

“Earlier this year, in Germany we were affected by devastating floods – we have experienced ourselves the importance of preparedness and the vital role that insurance can play in recovery,” Krämer said.

Ibrahima Cheikh Diong, United Nations Assistant Secretary-General and director-general of the ARC said that the grant is a “clear testimony” of the value of partnerships for smart disaster risk management and financing for early action.

German Gov commits €18mn to back ARC climate cover

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Liberty Specialty Markets’ (LSM) newly hired head of responsible business Denise Delaney believes the insurance industry must “retool” so models accurately reflect the climate change-impacted risk landscape, while also reducing its own emissions and updating the emissions measurement and disclosure frameworks within its insurance and investment portfolios.

Delaney joined Liberty Mutual subsidiary LSM from Environmental Resources Management (ERM) in August to help “increase the momentum behind [the company’s] ESG agenda”, the company said at the time.

And talking to The Insurer TV during the COP26 talks in Glasgow, Delaney said “the industry has got a number of things” to do to help manage the impact of climate change.

“There’s a recognition that some of our tools aren’t up to the job,” Delaney said.“One of my colleagues put it as ‘reality has overrun the models’, and we do need

LSM’s Delaney says industry must “retool” to reflect changed climate landscape

“Climate change is one of the biggest transformations that we’ll see in our lifetimes, and the insurance industry has a really significant role to play, particularly as an enabler”

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to retool and make sure that we’re not simply relying on historical data for an exponentially different trajectory going forward,” she added.

At the same time, the industry must “do as much as we can towards decarbonization” and reduce its own carbon emissions. The industry also needs to develop additional new tools to help fill “the really big gap” that exists around the measurement and disclosure framework for the emissions within insurance and investment portfolios.

“It doesn’t really exist for our industry today,” Delaney said.

Furthermore, the new LSM hire said the industry will “continually need to be modelling the risk and translating that into mitigation action for our customers and clients”.

The industry has a major role to play in managing the impact of climate change, Delaney said.

“Climate change is one of the biggest transformations that we’ll see in our lifetimes, and the insurance industry has a really significant role to play, particularly as an enabler,” she said.

And Delaney highlighted the commitments LSM, and Liberty Mutual more broadly, has made to managing climate change and transitioning to low carbon emissions.“In terms of emissions, we’ve committed to reducing our own operational emissions, and that’s a 50 percent target by 2030 against a 2019 baseline,” said Delaney.

“We’ve also joined the Partnership for Carbon Accounting Financials, or PCAF, and that’s doing some really important work to fill a really big gap around measuring and disclosing emissions within its insurance and investment portfolios.”

Last year, Liberty Mutual became the first US property and casualty insurer to sign up to the United Nations-supported Principles for Responsible Investment, and Delaney said the company is using its insights to integrate ESG into investments.

“We’re also really accelerating our work to get ESG embedded in how we underwrite business and really that starts with the energy transition,” she stated.

“In terms of emissions, we’ve committed to reducing our own operational emissions, and that’s a 50 percent target

by 2030 against a 2019 baseline”

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c Lloyd’s has detailed its plans to introduce a measurement framework to monitor syndicates’ carbon underwriting. Lloyd’s chairman Bruce Carnegie-Brown told The Insurer TV that the framework to measure progress towards net zero is expected to be put out to the market in the coming months, The framework will be piloted by managing agents in 2022, before being refined and scaled up in 2023.

c (Re)insurers and brokers will fall within a UK government initiative unveiled this week which requires UK financial institutions and listed companies to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards a net zero economy by 2050.

c The Insurance Development Forum (IDF) has partnered with the Start Network coalition of humanitarian charities to launch a new service providing ex-ante funding for escalating climate-related risks. The Start Ready financing facility will provide pre-agreed funding for risks such as drought, flooding and headwaves, based on pre-agreed triggers, with RenaissanceRe providing technical risk modelling expertise.

c The IDF also signed an agreement with the V20 group of ministers for vulnerable countries to create a Global Risk Modelling Alliance (GRMA). This public-private partnership will see the industry provide open-source technology and standards, a “public good fund” to help countries fill model and data gaps and a technical assistance team, partly funded by the insurance team, to work with countries on applied projects.

c The IDF also confirmed the establishment of the multi-partner Global Resilience Index Initiative (GRII), which is set for a formal launch next Monday. Partially funded by the insurance sector, the initiative intends to provide a globally consistent model for the assessment of resilience across all sectors and geographies, curated on an open-source basis.

A recap of the main insurance-related news from the first week of COP26 discussions in Glasgow

News Digest

COP26 news digest

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c The InsuResilience Global Partnership formally launched its Strategic Evidence Roadmap at the COP26 talks in Glasgow, which is aiming to grow the reach and effectiveness of insurance and risk financing solutions as a disaster management tool. The roadmap is aiming to collect evidence around what works in climate and disaster risk finance and insurance as part of a drive to unlock the potential that insurance can bring for those exposed to natural disasters in vulnerable countries.

c Aviva, Axa and Scor are among more than 30 major financial institutions that have promised to end investment in agricultural commodity-driven activities linked to deforestation by 2025. In one of several initiatives unveiled at COP26 to tackle deforestation, financial institutions representing $8.7trn in assets have committed to assess their investment exposure to deforestation risk by the end of next year. This will focus on agricultural commodities – palm oil, soy, beef and leather, pulp and paper – that are thought to be tied to the most significant deforestation impacts.

c BPL Global has been named as broker the Green Guarantee Company (GGC), a newly launched company that will guarantee climate bonds issued on the London Stock Exchange. GGC has been funded by the Development Guarantee Group, which is backed by incubator and fund manager Carbano Development, with Sovereign Risk Insurance and Liberty Specialty Markets serving as its lead insurance partners. Ascot and Aspen are also serving as insurance partners for the new entity.

c Allianz has agreed a partnership with the World Bank’s International Finance Corporation to launch a platform for climate smart-investment that will provide up to $3bn for private enterprises in developing economies. Investor contributions will be combined with IFC funds to scale up climate-responsible financing in developing economies.

c The Net Zero Insurance Alliance has announced plans to target brokers and industry associations as it moves to expand its membership. The NZIA said it is working on a standard to disclose global emissions by the summer of next year, with its target setting protocol planned to launch by January 2023. Members would then be expected to publish their first interim targets within six months of that date.

c Pool Re has partnered with the International Forum of Terrorism Risk (Re) Insurance Pools and the National Consortium for the Study of Terrorism and Responses to Terrorism to generate new reports considering the impact climate change has on what drives terrorism. The reports will examine current and contemporary threats along with global regional outlooks, and will also provide possible actions and recommendations of how to mitigate the risk. These actions will be presented at the IFTRIP’s next meeting in May 2022.