The issue of climate change has dominated the headlines recently. There are several reasons for this. We’re starting to realise that Generation Z and Millennials are probably the last generations that could turn things around before it’s too late.
Teen Greta Thunberg, a climate change activist, has put the issue firmly in the spotlight through raising global awareness of the issues and risks of climate change. She forms part of a generation that wants change – and relays how this isn’t happening fast enough.
There’s no doubt we’re facing more diverse and extreme weather conditions. This is all attributable to climate change, which by definition refers to the change in climate patterns, which started occurring from the mid to late 20thcentury. It’s maintained that this erratic weather is attributable to levels of carbon dioxide produced by fossil fuel usage.
While younger generations are becoming more vocal about the challenges of climate change the same can’t be said for some private enterprises. Climate change poses a great threat to the bottom line of the UK and global insurance industry because its resulted in a higher number of expensive claims thanks to the damages caused by the extreme weather.
Impact of severe weather
The Association of British Insurers (ABI) pointed out that hurricanes Florence and Michael which caused much destruction in the first half of 2018, resulted in insured losses of more than $10 billion (£8.11 billion).
Meanwhile, last year’s big freeze in Britain resulted in insurers paying out a record amount for burst pipes – a whopping £194 million over three months. We’re due to get a big freeze again in 2020 – guaranteed to cause more destruction and volumes of claims.
The ABI has pointed out that the extreme weather has also wrecked the stability of homes with 10,000 households claiming for damage caused by subsidence at a cost of £64 million.
So, what are the solutions for the UK insurance industry in helping to reverse the effects of climate change? The ABI suggests that UK insurers, which together hold over £1.8 trillion in invested assets, transition to more sustainable investments.
This is a worthy solution, which appears to need more effort. The ABI shows that so far, only 1.2% of all assets under management in the UK are invested in environmental, social and governance (ESG) investments such as renewable energy.
In 2017, Greenpeacehoned in on the issue pointing out that leading insurance companies in Europe and the US were slow in severing ties to the underwriting or investing in the fossil fuel industry.
But fast forward a few years and there are encouraging signs that insurers and reinsurers are divesting from companies that produce or have exposure to the coal industry.
They’re redirecting their funds to greener investments and also taking the hard stance of not insuring companies that pose a threat to the environment. This also helps to reduce their e exposure to liabilities that would emanate from such companies who’ve sought to insure any fall outs.
Why tech is an important investment
However, it’s not only investing in the right funds and companies that’s key. Technology can play a role in combatting climate change as well. But there appears to be some resistance from the insurance industry to fully embrace it. Or, at the very least, there’s a slow uptake on catering to things that could help to fight climate change.
Granted there are some companies in the industry that do more than most, but as with any fight that involves climate change there’s the potential for more to be done and more to get involved.
Take for instance electric cars. Initially the premiums for these types of vehicles were more expensive than the premiums for diesel or petrol cars. There seemed to be few incentives for the consumer to back green vehicles.
This was because it was thought that electric cars were more expensive to fix than conventional petrol fueled cars. But as electric cars have become more mainstream the cost of insuring them has come down.
But the gradual uptake in alternatively fueled cars can’t be blamed on the insurance industry alone. Car manufacturers have made these more environmentally friendly vehicles more expensive than their gas guzzling counterparts thereby making it less financially attractive for the average consumer.
There are some encouraging signs though. Australia’s second largest global insurer QBE, for instance, is taking a stand against climate change by deliberately investing in start-ups and entrepreneurs focusing on tech that will help improve the world.
They’ve pointed out the flawed logic in modeling catastrophes based on what’s happened in the past rather than the future. To counteract that they’ve partneredwith and invested money into Jupiter, which specialises in predicting and managing the risks of climate change. Jupiter does this through data that’s been gathered to help it predict climate risk from one hour to 50 years in the future.
Besides investing in Jupiter, QBE has also invested in other tech enabled firms including RiskGenius, Cytora and Hyperscience a machine learning start-up.
Insurers are on the frontline of the war on climate change. They have the power and the funds to help turn things around. The way forward to achieve this is to carry on with this trend of diverting investments into greener funds and investing in tech that can help save our planet.