In a world increasingly hit by severe climate events, the importance of climate resilience in the insurance sector is more critical than ever. Today, we’re joined by Simon Glairy, an authority in insurance and Insurtech, specializing in risk management and AI-driven assessments. With a sharp focus on how insurance can adapt to and reflect climate resilience, Simon provides insights into innovations and opportunities within the industry.
Can you explain what climate resilience credits are and why they are important in the insurance industry?
Climate resilience credits are essentially incentives provided by insurers to reward companies for their efforts in mitigating climate risks. The importance lies in promoting proactive measures, such as upgrading infrastructure to withstand extreme weather, by offering benefits like reduced premiums. This not only reduces the potential damage costs for insurers but also encourages businesses to prioritize sustainable practices.
How do you foresee the London insurance market setting a global standard for incentivizing sustainability?
The London insurance market, with its history of innovation and firm regulatory framework, is poised to lead globally by creating structured incentives for climate resilience. By being the first to implement frameworks such as TCFD, London can serve as a model for integrating sustainability into underwriting processes, setting benchmarks that other markets can emulate.
What are some current challenges in making insurance coverage and pricing reflect climate-related investments?
One major challenge is the inconsistency in recognizing climate-related investments due to a lack of standardized frameworks. Insurers often rely on actuarial data, which may not account for recent mitigation efforts by companies. This inconsistency can discourage companies from continuing their investments in sustainability.
Can you give examples of “pockets of innovation” in the industry that show early signs of recognizing climate resilience?
Certain insurers have started offering reduced deductibles or informal premium credits for companies implementing effective resilience measures. While these are promising, they are often ad hoc and need a more structured approach to have a widespread impact across the industry.
How can a resilience scoring system benefit companies and insurers alike?
A resilience scoring system provides a quantifiable measure of a company’s climate readiness, allowing insurers to offer tailored coverage options. For companies, this transparency translates into potential cost savings and encourages continuous improvement in resilience strategies, which also stabilizes risk exposure for insurers.
What parallels can be drawn between insurance and financial markets concerning incentives for sustainability?
Both sectors can implement performance-linked incentives, such as lower premiums or interest rates, to encourage sustainable practices. Just as financial markets reward green upgrades with tangible benefits, the insurance industry can offer premium reductions for demonstrable climate resilience efforts.
How does your proposed climate resilience playbook work, and what does it include for companies?
The playbook serves as a comprehensive guide for evaluating and pricing climate-related risks. It includes specific sections for different perils like floods and wildfires, offering detailed strategies and timelines for mitigation. This structured approach assists companies in identifying vulnerabilities and addressing them effectively, which insurers can then use to assess risks accurately.
What were some challenges you faced in developing Marsh’s climate resilience playbook?
Creating a universally applicable tool was challenging due to the diverse nature of climate risks. We needed to incorporate region-specific solutions, which required extensive research and collaboration with experts across various fields. Additionally, aligning these insights with insurers’ frameworks was crucial to ensure practical application.
Why is there a lack of a standardized framework in evaluating climate risk mitigation efforts?
The absence of a standardized framework often stems from varying climate impacts and mitigation measures across geographies and industries. Moreover, the novelty of comprehensive climate assessment tools means that the industry is still adapting to methods for integrating these into existing pricing models.
How can brokers play a more crucial role in promoting climate resilience within the insurance industry?
Brokers act as the conduit of information between clients and insurers. By accurately communicating clients’ resilience efforts, brokers can advocate for their recognition in insurance terms. Making sure these achievements are documented and understood by insurers is key to promoting climate resilience in the industry.
What are the barriers keeping insurers from altering pricing models for climate resilience?
Insurers face barriers like data inconsistency and a lack of incentive structures to reflect mitigative efforts. Additionally, the entrenched reliance on historical data makes it challenging to incorporate forward-looking measures, necessitating a shift in conventional risk assessment practices.
How do coordination gaps between risk management teams, brokers, and underwriters affect the integration of climate resilience?
These coordination gaps often result in fragmented information flow, where actionable risk mitigation efforts may not reach underwriters who set insurance terms. Bridging these gaps would allow comprehensive data-sharing, enabling more accurate and beneficial insurance offerings.
Do you think regulatory pushes are necessary for the wider adoption of climate resilience incentives in the insurance industry?
Regulatory interventions could certainly accelerate the adoption by providing a framework that mandates consideration of climate resilience in pricing models. This would standardize practices across the board, encouraging insurers to develop innovative products that reward sustainable actions.
How do you propose bridging the silos between brokers, insurers, and clients to ensure climate readiness is rewarded?
Implementing integrated platforms that facilitate real-time data sharing between all parties can bridge these silos. Regular workshops and training sessions to align understanding of climate risks across the board would also foster better collaboration and reward climate readiness more effectively.
What do you think are the long-term impacts of adopting structured climate resilience credits in the insurance sector?
Adopting structured climate resilience credits could lead to a significant shift toward preventative measures. In the long term, this approach can stabilize the insurance market by reducing disaster-related losses and, more importantly, contribute to a sustainable future by encouraging widespread risk mitigation and adaptation strategies.
