The Insurance Market and Climate Change

On 29th October 2021 the Lloyd’s of London insurance market announced the launch of an action plan to ‘accelerate the transition to net zero’. The press release states that the plan will set out how ‘the insurance industry will partner with critical industries to support and accelerate the transition to a low carbon economy’. Certainly, it seems that Lloyd’s, alongside numerous insurers both within and outside its market, are keen to burnish their ESG credentials as there have been a flurry of ESG initiatives from the sector recently, no doubt inspired by the activities of groups such as Insure our Future.

Is it right however, for a mature and economically vital sector like insurance to move so quickly down the fashionable road of ESG perhaps encouraged with a hefty push from a relatively small group of activists? To misquote the immortal words of Archbishop Desmond Tutu, is Lloyd’s (and are other insurers) merely stopping the ESG gravy-train long enough to clamber aboard?

There is no doubt that the global climate is changing. There is, equally, no doubt that man’s existence is placing ever increasing pressure on the natural world – whether on the climate or on the planet’s natural world. In the time that any of us with grey hair (or no hair) have been alive, the global population has nearly tripled in size, and yet the planet hasn’t got any larger; thus mankind will inevitably be putting materially-increased strain on almost every aspect of our presence on earth. It is said that only thanks to man’s ingenuity has the increase in food production outpaced global population growth – and we are thankfully, as things stand at least, still able to feed all these extra mouths.

Insurance Market: USP not ESG

If mankind is to continue to coexist with the various critical systems of the planet, then much deeper thinking, and far greater ingenuity and innovation will be required. Insurance underpins almost all economic activity, and, with such a pivotal position it must play a much wider role in supporting such ingenuity and guiding innovation where necessary. The information the insurance market holds on past claims is a veritable treasure trove of data, going back generations. Better use of this resource by the insurance sector is, it seems to me, of rather more practical benefit to mankind than any degree of virtue signalling about ESG.

Instead of acronym-filled, flashy, corporate initiatives, insurers could choose instead to focus on helping governments, planners, businesses and individuals ensure that new and current infrastructure projects in both developed and underdeveloped nations are future-proofed against a whole range of risks associated with a more crowded world. Whether it’s how to manage the environment carefully, or how to build, where to build or how to defend what is already built, so much of this necessary expertise is already embedded in the insurance market. However, there is a risk that this knowledge and experience isn’t properly utilised in the rush to respond to climate activism. The apparent heresy of stopping to think through, with sufficient care, what might be the most scientifically sustainable option to deploy, in all the circumstances, is sacrificed on the altar of campaigns such as trying to stop insurance for fossil fuels.

Going forward…

In subsequent blogs in this series, I intend on looking at the three most high-profile causes of recent catastrophic losses in the insurance market, being flood, windstorm and wildfire. Some parts of the media and some climate activists have a mutual interest in promoting the most lurid and gloomy predictions for the whole of mankind every time one of these events occurs.

In these blogs, I will highlight the potential risk that such climate alarmism has to misdirect the efforts of the insurance market, and how that may, in turn, serve to undermine both our understanding of these risks, and insurers’ wider contribution towards mitigating them.


About the Author

Mark Tetley has wide experience gained from senior positions across the London insurance market as both an underwriter and a broker, in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

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  1. Climate Change

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