This piece is by Nick Moakes, Peoples’ Deputy and Committee Chair for We Are Guernsey and it looks at how insurance brands can help create a more sustainable future.
The key themes of this year’s We Are Guernsey’s Sustainable Finance Week explored how the energy transition, carbon markets and pricing and biodiversity will impact financial markets and what institutions can do to support the journey to net-zero. It is in these three themes, as laid out in the Guernsey Green Finance 2022 strategy, that meaningful change lies. It is clear from the discussions at Sustainable Finance Week, that the insurance sector will play an important part in helping to address environmental and climate challenges.
As we outlined in our Green Finance strategy at the start of the year, the challenges facing the world from climate change are severe and have increased enormously over the last 50 years:
· Climate hazards account for more than half of global disasters and extreme weather events are causing more disruption than ever. In 2021 there were extreme floods in Europe which killed 208 people and the heat dome in Canada killed 500 people.
· Leading insurers warned that 2021 was set to be the sixth time global natural catastrophes have cost more than $100 billion — with all six times occurring since 2011.
· The changing climate also disrupts supply chains, affecting the cost of capital, risk weightings in portfolios and altering the insurable landscape.
Much of the discussion from keynote speakers and in the expert panel sessions centre on the impact changing environment will have on the way in which insurance providers run their businesses, what future protection might looks like and opportunities these changes may present.
Points that resonated with me over the three days include:
1. Compared with other financial markets, insurance sits in a unique position where the transition will open more doors than it will close. We’ve already seen the world’s first Catastrophe Bond issued last year through a Guernsey ILS structure which placed $3 million, sponsored by the Danish Red Cross, to cover the risk of 10 volcano eruptions across three continents.
Physical and catastrophe insurance, due to climate change, will become increasingly relied on in the upcoming transition to net-zero. Many speakers at Sustainable Finance Week made it clear that until further action has been made, dramatic changes to the earth’s ecosystem causing climate events will increase, causing chaotic lifestyle and business changes.
2. Global events are leaving their footprint on the world in more ways than one. In the past two decades, there have been 11,000 climate events which caused total losses of £2.6 trillion (0.6% of global GDP). However, the insurance industry is moving towards a more balanced outlook.
It’s common for those in the finance industry to complain about the ‘alphabet soup’ of frameworks. However, the event’s speakers praised the Guernsey International Insurance Association’s ESG Framework and was used as one example of how the insurance industry specifically, was moving from ‘labelling’ to ‘doing’. We know climate events will continue to impact the world and we need to adapt our operations to support the fallout of these terrible situations.
3. Whilst there are many new opportunities arising from the transition to renewables, there are a number of new concerns for risk managers. The lack of insurance coverage around specific technologies can cause a protection gap and what could cause a downfall in the supply chain with risk managers unable to support the transition.
It’s easy to see how this could cause the insurance industry to look like the bad guy in the journey to net zero. However, this creates opportunities for companies to explore the benefits of captives until the commercial market is able to take over.
4. The push towards net-zero will require cross-sector collaboration to ensure new technology developments are able to make a quick impact.
The transition will need to involve considered action – not only finding new methods and technologies for our energy or food needs but also transitioning green industries and sectors to green. We will also need to see a lot of willingness from insurers to be brave on climate-related activity however, could this still mean uncertainty cause increased premium costs?
5. There have been a number of businesses starting their journey in Guernsey, like Paratus Group for example. There are a number of logistical reasons for this – the generous time zones allowing the firm to work across a number of continents in one day for example. However, there were also a number of sector-specific reasons including the quality of regulation in Guernsey and the quality of service providers.
Given Guernsey’s wide areas of expertise in insurance and finance, we are in a position to play a leading role in the development of insurance and financial solutions to make the transition to net-zero one that works for everyone.
This year’s We Are Guernsey Sustainable Finance Week hosted more than 300 like-minded individuals across four days of core and fringe events to engage in thought-provoking conversations about how finance can support the journey to a sustainable future. The week also announced the launch of the Nature Capital Fund from the Guernsey Financial Services Commission and the launch of a ‘Just Transition’ report highlighting how private finance can support the journey to net zero.