CEOs of ClimateWise welcome the Prudential Regulation Authority’s assessment of the impact of climate change on the insurance industry, yet warn that more needs to be done to improve resilience.
The leaders of 15 ClimateWise members have today written an open letter to Mark Carney, the Governor of the Bank of England, and the UK’s Prudential Regulation Authority (PRA). They welcome the PRA’s initiative to be one of the first insurance regulators globally to examine the likely impact that climate change will have on the insurance industry and its customers. The insurance leaders are also calling for the PRA’s report to lead to more urgent collective action to reduce the risks of climate change impacting society, and ultimately the insurance industry.
ClimateWise is the insurance industry leadership group on climate change risk, with the secretariat provided by the University of Cambridge Institute for Sustainability Leadership (CISL).
The PRA report, ‘The impact of climate change on the UK insurance sector’, is one of the first examples globally of an insurance regulator examining the impact that climate change risk could have on the insurance industry and its customers. To help inform the report, ClimateWise supported the PRA by convening a series of roundtables that brought together industry leaders and academic experts on topics ranging from the physical impacts of climate change on insurers’ underwriting activities to the impact different responses to climate change may have on their investment portfolios.
ClimateWise Chair Maurice Tulloch, also Chairman of Aviva Global General Insurance and CEO, Aviva UK & Ireland General Insurance, explains:
“The PRA report highlights a number of important risks the insurance industry, its regulators and customers will need to collaborate on in order to build societal resilience to the impacts of climate change both economically and equitably. Yet the greatest priority is to ensure that we minimise the future levels of climate risk we will face. This is why strong action today, to limit global warming to below 2oc, is so important.”
Reinforcing the potential impacts of climate change, a recent report authored by Sir David King (the UK Foreign Secretary’s Special Representative for Climate Change), entitled Climate Change, A Risk Assessment, noted – for example – that with one metre of global sea level rise, the probability of what is today regarded as a ‘100-year flood’ will become about 40 times more likely in Shanghai, 200 times more likely in New York and 1000 times more likely in Kolkata.
As the probability of extreme events increases in this way, it typically becomes far more difficult to insure against them – and certainly below levels deemed affordable by customers. The result would be a society less prepared for any future shocks climate change may bring.
This highlights the urgent need for a broader, systemic and more societally focused response to managing the risks of climate change. In their letter, ClimateWise members note that insurers should be enabled to better align their investment and risk management capabilities, while maintaining the financial security of their clients, so that invested capital flows can contribute to enhancing the overall resilience of society beyond the traditional financial risk transfer role insurance currently plays.
ClimateWise members also called on the PRA to ensure ‘this engagement is only the first step in a much broader journey of collaboration aimed at managing the impact of climate change risk for the industry and its clients.’
Click here for further information on the PRA report please visit.
The letter and its signatories
ClimateWise CEO’s respond to the Prudential Regulation Authority’s report on the impact of climate change on the UK insurance sector
As leaders from across the global insurance industry, we share the view that climate change poses one of the greatest challenges to the long-term health of global economies and societies and, as such, demands urgent action. Consequently, we have voluntarily committed to ClimateWise – the insurance industry leadership group on climate change risk – to help identify ways that the insurance industry can support the societal transition to a low-carbon, climate-resilient future.
As members of ClimateWise, we welcome the UK insurance regulator, the Prudential Regulation Authority (PRA), taking the initiative to examine the impact of climate change from the perspective of the insurance industry. We are already trying to respond to climate change as framed by reports such as The World Economic Forum 2015 Global Risks Survey which identified a failure of climate adaption as one of the top four high-impact, high-likelihood risks.
We commend the PRA for leading insurance regulators globally in focusing on this critical issue. We also look forward to this engagement being only the first step in a much broader journey of collaboration aimed at managing the impact of climate change risk for the industry and its clients. As members of the insurance industry, we want to work together towards achieving a regulatory regime that allows our industry to fulfil its full potential as society’s risk-manager and to help maintain risk exposure within insurable levels. Such a regime is one that would enable us to better align our investment and risk management capabilities, while maintaining the financial security of our clients.
§ Andrew Kendrick (President) – ACE European Group
§ Charles Philipps (CEO) – Amlin
§ Dominic Christian (Executive Chairman) – Aon Benfield
§ John Spencer (Non-Executive Chairman) – ArgoGlobal – Syndicate 1200
§ Maurice Tulloch (CEO) – Aviva UK & Ireland General Insurance
§ Andrew Horton (CEO) – Beazley
§ Phil McNeilage (CEO) – Cunningham Lindsey
§ Bronek Masojada (CEO) – Hiscox
§ Torbjörn Magnusson (President & CEO) – If P&C
§ Andrew Roberts (CEO) – Innovation Group
§ Inga Beale (CEO) – Lloyd’s
§ Stephan Coward (President of Technical Risk) – Navigators
§ Richard Murphy (CEO) – Renaissance Re
§ Stephen Hester (CEO) – RSA Insurance Group
§ Gary Shaughnessy (CEO) – Zurich UK