Insurance companies are particularly exposed to the risks of climate change.
Even before record rainfalls and super-typhoons hit much of East Asia last year, the cost of natural disasters in the region soared. A UN report found that from 2007 to 2016 the damage from natural catastrophes in the Asia-Pacific region was twice as high as in the decade before. “Climate change is likely to make this situation worse in the future”, the report warns.
Insurance companies are particularly exposed to the risks of climate change. Their losses from disasters such as typhoons, floods, droughts and wildfires reached $140 billion and $80 billion in the last two years, significantly more than the long-term average of $41 billion. Insurers from Japan and other Asian countries incurred record losses from natural catastrophes as well during this period.
Thomas Buberl, the CEO of AXA, has warned that with 4 degrees of warming, climate impacts will become so severe and unpredictable that they will make the planet “uninsurable”. As insurers from around the world convene for their biggest annual trade show in Singapore this week, they need to consider how they can respond to a rapidly changing climate.
Insurance companies are not passive bystanders or victims of climate change. Through their risk management decisions, they are one of the hidden hands shaping the development of modern society. By underwriting the risks of emerging technologies, insurers can accelerate the breakthrough of clean energy sources. Likewise, if they stop insuring the risks of climate-destroying coal mines and power plants, few such projects will still go forward.
Encouraged by civil society groups, the UN secretary general and other voices, leading insurers in Europe and Australia have taken a long-term view to their self-interests in the face of climate change. Since 2017, 13 large insurance companies – including industry giants such as Allianz, AXA, Munich Re and Swiss Re – have adopted policies ending or at least limiting their insurance for coal projects and companies.
Allianz was “getting even more serious on climate change” and wanted to “cut the biggest climate killer out of the core business over time”, CEO Oliver Bäte argued when he announced the German insurer’s coal phase-out in May 2018.
The shift of insurers away from coal has already started to bite. According to Willis Towers Watson, a leading global insurance broker, the recent policies have caused “upward pressure on rates and coverages” for coal companies, which are already struggling to remain competitive with ever cheaper wind and solar power. At the same time, insurance coverage for clean energy projects has expanded.
The momentum among European and Australian insurers is welcome but not sufficient. An estimated 770 coal power plants are still in the planning pipeline or under construction, and 76% of them are located in Asia. According to the latest report of the Intergovernmental Panel on Climate Change (IPCC), none of these projects can be built if global warming is to be limited to 1.5 degrees.
With companies such as Sompo, Tokio Marine, MS&AD, Ping An and Samsung Fire & Marine, Asian countries are home to some of the world’s leading power and energy sector insurers. In contrast to their European and Australian peers, none of these companies have so far taken any action on coal.
In recent years Asian insurers have made positive commitments to environmental protection. Tokio Marine has joined the Japan Climate Leaders Partnership, Sompo chairs the committee for corporate social responsibility of Japan’s powerful business federation Keidanren, and along with MS&AD they have committed to reducing their carbon emissions in line with science-based targets. Ping An and Samsung Fire & Marine both conduct research into climate risks and have committed to integrating environmental factors into their investment decisions.
The climate commitments of Asian insurance companies are welcome but for now they do not address the core of their responsibility as global risk managers. The IPCC has called on all actors in society to take “unprecedented” measures to limit global warming to 1.5 degrees. Even as cheap wind and solar power have seen their breakthrough, burning coal remains the biggest source of global CO2 emissions. Like their European and Australian peers, Asian insurers need to fully embrace the low-carbon transition and stop insuring coal projects.