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
Will Self-Driving Cars Be Better for the Environment?
Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?
But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?
The Big Picture
The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.
That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.
One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.
There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.
As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.
Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.
Make and Model of Car
Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.
On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.
The Bottom Line
Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?
Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.
New Zealand to Switch to Fully Renewable Energy by 2035
New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.
New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.
Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.
Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”
The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.
Zero net emissions by 2050
Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.
Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.
She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.
Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”
A worldwide shift to renewable energy
Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.
Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.
Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.
Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.
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