Climate change and the sustainability agenda have been filling up news pages more and more in recent weeks and it is vital that corporations recognise the importance of not only having a ‘green’ strategy but implementing it well.
We spoke to six companies at the forefront of sustainable insurance to understand how climate change is influencing their overall corporate strategy. Below are excerpts from responses from AXA, Chubb, Manulife, Munich Re, Swiss Re and Tokio Marine.
Q: How does climate change influence strategy and decision-making in your organisation?
AXA chief risk officer Renaud Guidée: For several years, AXA has been developing an ambitious climate strategy and is acting for change on multiple fronts. That includes understanding and measuring our impact better, increasing transparency and, more broadly, consolidating a leadership position to align with the 1.5°C warming target of the Paris Agreement by 2050.
Our current strategy, building on over five years of progress, leverages all of our assets and expertise: Investments, underwriting, research and outreach.
Chubb spokesperson: We recognise that a changing climate affects everyone — customers, employees, shareholders, business partners and the communities we serve. We take concrete action after careful evaluation of risks and opportunities pertaining to climate change. The most important strategy components influenced by climate change are business opportunities, risk mitigation and company operations.
Manulife global chief sustainability officer Sarah Chapman: Manulife has been a supporter of the Task Force on Climate-Related Financial Disclosures (TCFD) since November 2017, publishing its first disclosure aligned with the TCFD in 2019, and is committed to adopting and aligning its disclosures to the TCFD recommendations.
We made history in 2018 as the first insurer to issue a green bond in Canada, which followed Manulife’s achievement as the first life insurer globally to offer a green bond in 2017. The environmental benefit of C$1bn of general account’s low-carbon investments that underpin two MFC green bond issuances amount to 150,000+ tons of carbon dioxide avoidance.
Munich Re chief climate and geo scientist Ernst Rauch: Munich Re has traditionally focused on covering peak risks associated with natural disasters; that is why we have deep expertise and an intimate understanding of climate change. We carefully observe and analyse these facts and data to assess risks and their evolution over time, and then price adequately based on this data.
Munich Re is supporting the target of the Paris Agreement to limit global warming to below 2°C and has a dedicated climate-change strategy on the asset and liability side of the balance sheet as well as with its own emissions.
Swiss Re chief risk officer, reinsurance Asia, Karen Tan: We have a group sustainability strategy that aims to create long-term value for both our business and society by evolving our business towards a low-carbon economy. This strategy is embedded throughout our re(insurance) value chain, covering both the asset and liability side of our balance sheet, and also includes operations and dialogues with our stakeholders, for example with clients and regulators.
Last year, we made important and ambitious commitments to achieve net-zero CO2 emissions for our whole business by 2050, and net zero in our own operations by 2030. Swiss Re has also recently announced an increase in internal carbon levy. We are the first multinational company to put a triple-digit price on both direct and indirect operational emissions.
Tokio Marine spokesperson: The increasing severity of natural disasters caused by climate change is one factor behind deteriorating earnings from fire insurance, in particular, owing to the rising number of claims payments. If we can be an early mover in supporting the growing renewable energy sector, we will be well placed to enhance our reputation and secure opportunities to cultivate the market.
Q: To what extent are you incorporating climate risk in your underwriting and/or new product design?
AXA: Sustainability, and more specifically climate risk, has been included in our underwriting practices for years already, for example through exclusions (coal, tobacco, oil sands). More recently, on the fifth anniversary of the Paris Agreement, CEO Thomas Buberl called for the creation of a ‘Net-Zero Insurance Underwriting Alliance’ (NZUA) to extend our commitment collectively to climate neutrality to our insurance activities.
The thinking of the NZUA goes to the very heart of the insurance business and has the potential to transform the way we approach risk profoundly. The ambition of the alliance is also to prepare the insurance industry to accompany the green transition. It’s all part of the road to COP26.
Chubb: For several years, Chubb has offered a suite of coverages through the specialised clean tech industry insurance programme. We also support transitional efforts through specialised products, such as our green building restoration coverages. We will continue developing products and services as the opportunities and need arise.
Munich Re: The insurance industry has to identify the effects and long-term trends of an increasing influence of climate change over time, quantify it, and subsequently consider risk-adequate pricing. In the interest of facilitating adaptation to the unavoidable adverse impacts from climate change and adopting climate-friendly technologies, Munich Re has been driving forward initiatives on loss minimisation and prevention.
We also develop new business from covering risks in the renewable energy sector, where we already enjoy a leading position in performance covers for wind power, photovoltaics and battery storage.
Swiss Re: We have a framework for monitoring sustainability risks, including those related to climate change. The framework, called sustainable business risk framework, is supported by an escalation mechanism and an online tool which is used by underwriters and asset managers to assess sustainability risks (including the climate risk) of their proposed transactions. In addition, our in-house natural catastrophe models include rapid feedback loops to incorporate learnings post-event, and latest scientific information in our view of risk to better inform underwriting decisions.
Tokio Marine: We incorporate recent climate risk when we underwrite and determine premiums, while we also plan to develop new products and services based on clients’ needs related to climate risk.
Q: How can life insurers address the impact of climate change?
Manulife: The good news is that many life insurers globally have already been contributing to the transition to the low-carbon economy. Specifically, and uniquely for Manulife, our agriculture and timber business on the asset management side is one of the largest natural resource asset managers for institutional investors. Over the past five years, John Hancock Natural Resources Group-managed forests and farms have removed an average of 3.1m tons of CO2 from the atmosphere annually – enough to take roughly 670,000 passenger vehicles off the road for a year.
We have a unique role to play in providing natural-climate solutions and driving the broader ESG agenda across our operations and, more importantly, our investments.
Q: How are you helping clients mitigate climate risk?
AXA: We are one of the only global insurers to have developed our own internal natural catastrophe modelling, with massive R&D investment and strong links to academia. Our AXA XL Risk Consulting franchise delivers services which include infrastructure reinforcement and warning systems. AXA climate also offers innovative solutions to enable adaptation to climate change through parametric insurance for faster recovery, real-time protection services and resilience-building consulting and adaptation services.
Chubb: Chubb’s more than 600 risk engineers work with our commercial and consumer clients to moderate the risks from climate change perils and make them more resilient. The company brings deep technical knowledge to this work, from providing guidance on construction standards, wildfire land management and coastal protection to the development of lithium battery storage systems.
Another example: Chubb’s green property insurance policy provides coverage for commercial businesses that desire to rebuild to a ‘greener’ standard in the event of a loss to an existing building.
Munich Re: Being one of the leading reinsurance companies globally, Munich Re supports its clients with its knowledge and data analysis through the use of different tools. One example is our risk intelligence suite which shows essential information on today’s hazards and climate projections to improve clients’ risk portfolios.
Swiss Re: Some recent examples of our work in Asia based on our sustainability principles include an index-based rice insurance product in Vietnam using radar-based remote sensing technology for yield data. This project scored a few firsts for us – it is the first time that we integrated satellite technology into a public insurance scheme, and it is also the first index-based rice insurance product adopted in a public scheme in ASEAN. In Nagaland, India, we have also partnered with a direct insurer (Tata AIG General Insurance) to provide India’s first parametric Nat CAT insurance scheme for a state.
Ultimately, the insurability of climate risks is highly dependent on the preventive measures and other actions such as socioeconomic policies, zoning laws and geographic planning. As such, we work closely with governments on climate-adaptation strategies by sharing with them underlying climate risks and costs of adaptation measures.
Tokio Marine: Some examples of our solutions include:
- Business continuity plan (BCP) consulting service: We support our corporate clients to formulate BCP as well as employee training so that they can mitigate the impact to their business in times of natural disaster and recover quickly.
- NADIAct: It is a GIS platform which supports clients to monitor disaster information of various locations and by utilising alert mail sent from NADIAct, clients can take appropriate initial action when necessary.
- Mobile agent (app): We send personalised videos regarding the preparation for a natural disaster such as typhoon and send messages related to disaster prevention/evacuation via mobile app, to give a heads up to our client.
Q: Do you incorporate sustainability into your ERM approach, and what are some of the challenges posed if any?
AXA: We take ESG considerations into account in every aspect of our risk management process. This integration of sustainability requires a multidisciplinary approach, involving many teams – risk management, actuarial, underwriting, risk modelling, investments, to name a few. This is an area in which we need to develop our thinking further, especially with regard to scenario analysis and stress tests. One of the big challenges we face is the availability of reliable data which is required to feed into climate models and scenarios.
Chubb: Because the potential effects of climate change present a significant risk to Chubb, analysis thereof has been integrated into our overall enterprise risk management (ERM) process. For example, in our investment portfolio, we have taken action to reduce our fixed income investment exposure to municipalities and states prone to natural catastrophes. In working with Chubb’s product boards and investment team, the ERM function also stress tests the impact of climate change on Chubb’s balance sheet, liquidity and operations to ensure resiliency in light of intensifying natural catastrophes activity.
Manulife: We have begun to integrate climate risk into some of our internal stress testing and scenario analysis activities, which includes drawing from emerging guidance on scenario analysis to inform things like our capital adequacy and impacts on our investment portfolios. At the same time, we are closely monitoring and actively participating in industry and regulatory forums to collaboratively explore best practices and tools.
Swiss Re: Our sustainable business risk framework is used as a basis to identify sustainability risks in our underwriting and asset portfolios. In addition, we have a well-established and robust emerging risk identification process. It is an annual exercise driven by our group risk management team in Switzerland, with regional focus and input from our experts as well as senior management.
One of the challenges is finding the right balance between developing projections of the financial risk of climate change over a long-time horizon, while at the same time ensuring that today’s risk view is comprehensive. Getting today’s risk view right is important as it forms the point of reference upon which all future climate scenarios are premised. This requires careful management of resources and prioritising risks that are material for the business.
Beyond underwriting, Swiss Re is committed to responsible investing and integrates ESG criteria consistently across its entire investment portfolio.
Tokio Marine: We see climate-related risk such as major wind and flood disasters as one of the material risks and evaluate capital adequacy through a quantitative risk management process. In future, we anticipate climate-related risk will increase and further intensify, so it is important to take appropriate actions.
Q: What will the talent implication be as the insurance industry moves towards a more ‘green’ footing?
AXA: It’s a rapidly evolving space. We value people with an open mind-set and are flexible in terms of industry and technical background. There is an opportunity for new skillsets to come into financial services. We are also seeing strong interest from our staff. Training is part of our climate strategy.
Manulife: Life insurance products are long-term commitments, with contracts that can last a lifetime. It is therefore critical that our product professionals and actuaries understand sustainability and the impact climate risk can have on our products including mortality, morbidity, investment and other risks.
Munich Re: In the 1970s, Munich Re started to build a solid knowledge base with diverse experts in fields like meteorology, climate physics, floods, earthquakes and statistics. Today we have many colleagues with such unique expertise in locations worldwide working on analysing and modelling Nat CAT risks. With our business development activities with new low emissions technologies, we are also looking for outstanding talents with expertise in this high-tech domain.
Swiss Re: We incorporate sustainability into everything we do. We are building this awareness and innovation in our people and we also work with external partners to test and learn before we scale and replicate through our global footprint. We are doing what we can to lend our skills and knowledge, as well as grow the talent pool in this area but, like everyone else in the industry, we still see a talent gap in this space. To develop a pipeline of strong green finance talent, we believe that it needs to be a private-public partnership effort.
In Asia, we are already seeing some positive developments in this direction. For instance, the Monetary Authority of Singapore launched its first centre of excellence to drive Asia-focused green finance research and talent development.
Lastly, as sustainability is a global topic, we think that it is important to leverage expertise and talent across markets. We think that cross-functional collaboration within the company between teams in different regions, for example Europe and Asia, would help in developing and strengthening local expertise in markets with larger expertise gaps. A
| Building a talent pipeline for green insurance
As a training and education provider, the Singapore College of Insurance (SCI) is invested in developing insurance talent which is ‘fit for the future’ both within Singapore and the wider ASEAN region. As leading insurers start developing green insurance products that require integration of environmental, social and governance (ESG) factors in both underwriting and pricing, there is a need to ensure a pipeline of insurance professionals who are aligned – both philosophically and commercially – with the concept of sustainability.
To that end, the SCI has developed a ‘Green Insurance Education Masterplan’ which seeks to upskill insurance professionals within the region on green insurance. The initiatives involve collaboration with a range of industry and academic partners and seek to leverage Singapore’s position as an aspiring green finance hub.
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 s part of the masterplan, upcoming initiatives include: ‘International Research Hackathon on Green Insurance and Sustainability’ and ‘Green InsurTech Hackathon’ set to be launched soon, as events leading up to the ASEAN Insurance Virtual Summit 2021. The events seek to tap expertise from within and beyond the insurance industry to look at green insurance in novel and innovative ways.
Additionally, we have launched this series of columns on green insurance in Asia Insurance Review to create a platform for the sharing of experiences and use cases by the global industry as well as to showcase best practices. Together, we can create a more sustainable planet for all and for generations to come.
Singapore College of Insurance CEO Karine Kam
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