Insurance companies could play a major role in addressing the climate and nature crises, but they are failing to ensure the billions of dollars of premiums they underwrite each year better protect the environment.
That is according to a new report out from WWF Switzerland and Deloitte Switzerland, which accuses insurance companies of “fueling” climate change and nature loss through their underwriting activities, warning the sector is “barely addressing” how its business activities are contributing to environmental destruction.
With $6.86 trillion in gross written premiums, insurance companies are an “economic heavyweight” with “enormous potential” to reduce the negative impact on climate change and nature loss through their underwriting business, the report authors contend.
WWF and Deloitte Switzerland claim the report is the most comprehensive study into the impact insurance sector underwriting has on climate change and biodiversity loss. It looks at a range non-life underwriting fields, such as liability insurance, marine and vehicle insurance, and property insurance.
The report stresses how climate change is already having a marked impact on the global insurance sector with insurers facing increased financial risks from payouts relating to extreme weather. Over the past few years, wildfires, earthquakes and floods have prompted insurers to hike up their premiums, limit coverage and, in some instances, stop insuring certain types of assets.
Thomas Vellacott, CEO of WWF Switzerland, said it was “high time” insurers addressed environmental risk by aligning their underwriting business with global climate and biodiversity goals, warning that extreme weather events were rendering many assets uninsurable.
“This summer, we witnessed devastating heatwaves and wildfires across Southern Europe, Northern Africa, Asia and Northern America,” he said. “Insurance companies and their clients are particularly affected by these events as they lead to greater payouts and entire regions become uninsurable.”
The report sets out a number of recommendations for how insurers can better align their underwriting activity with climate and nature goals.
For example, it calls for insurance products to be designed to prompt clients to make “green and resilient choices,” for instance through incentives for homeowners to build to high sustainability standards and a policy to favor “repair over replace” during claims management.
It also argues cover should be denied to the most environmentally destructive, carbon intensive and high risk sectors, while new products should be launched for clean energy, recycling projects and nature-based solutions.
In addition, it calls for insurance firms to review their environmental liability policies to eliminate incentives that have harmful knock-on effects on the environment and people, and instead require clients to adhere to the highest environmental standards.
“The insurance industry has the power to play a leading role in our effort to work towards a sustainable future. With their reach to all industries, insurance companies have the ability to incentivize sustainable practices and promote responsible behaviors of its customers,” said Marcel Meyer, head of sustainability at Deloitte Switzerland. “By incorporating environmental considerations into their business practices, insurers can help protect biodiversity, mitigate climate change and build a more resilient and sustainable future.”
The report also calls for insurance companies to formally commit to net zero greenhouse gas targets, align the underwriting business with global biodiversity goals, and publish and implement transition plans. This should include a phase-out of insurance coverage of fossil-fuel related activities in line with the International Energy Agency’s net zero pathway, which argues there is no need for any new fossil fuel production projects.
The report stresses that policymakers, insurance regulators and supervisors must help insurance companies reach global climate and biodiversity goals through regulation, policies and supervision.
“Addressing the physical and transition risks of the climate and biodiversity crises, ending the support for the unsustainable status quo and promoting a sustainable and resilient future is essential for the insurance sector and ultimately for humankind as a whole,” the report argues. “Insurance companies therefore have an urgent responsibility to use all their business functions, power and resources to be part of the solution to reach the global climate and biodiversity goals and help steer society towards a more sustainable future, rather than simply attempt to insure and finance a world in deepening crisis.”