British insurers launch ClimateWise in response to global warming, a project designed to promote greener policies, lobby government and take advantage of emerging markets. Jenny Fyans reports
The British insurance industry launched the new ClimateWise initiative last week in a bid to get to grips with global warming. Led by the Association of British Insurers (ABI), the project is designed to help insurers adapt to, and help mitigate, the possible effects of climate change, such as the increased risk of flooding, storms and heat waves.ABI director general Stephen Haddrill warned that “business as usual” will see the amount of greenhouse gases in the atmosphere treble by the end of the century, leading to climatic disaster. He says insurance companies need to reduce their own greenhouse emissions and encourage customers to reduce theirs.
Of the 400 or so insurance companies in the UK, around 30 have so far signed up to ClimateWise, including insurers, brokers and re-insurers. Those involved – including Lloyd’s, AXA and American insurance company AIG, as well as re-insurance companies such as Swiss-Re – say they will adapt their products to take into account the new environmental risks posed to UK customers.
ClimateWise principles
Participating companies are expected to commit to the principles of ClimateWise,
which include collaborating to calculate the financial risks posed by climate change, informing public policy-making and investigating new investment strategies.
Members have pledged to support climate awareness amongst customers and reduce their own carbon footprints. Their progress will be audited annually. The ClimateWise initiative also calls for better communication between insurance companies’ scientific researchers, the government and environmental organisations.
Haddrill is confident the insurance lobby can influence the government to produce better building regulations, suitably located housing, and flood defences. He says the UK government was already building stronger flood defences on the east coast and is considering a second Thames barrier.
But he warns that Labour needs to sort out its conflicting policies on climate change. “It’s important for the government to give a consistent message,” he says. “It can’t set climate change targets and then build houses on flood plains.”
Adapting to climate change
Some insurance companies are already adjusting their products and services to suit emerging markets that have resulted from climate change, and to respond to new opportunities arising in existing markets.
Swiss-re, one of the industry leaders on climate change, is already a key player in the weather-risk markets and has started to offer insurance services tailored to carbon trading and the clean technology industry.
In terms of existing products, the opportunities are primarily in household and SME insurance. Weather-related catastrophes should lead to a higher uptake of property insurance – flooding in the UK in June this year highlighted the large number of people in the UK without home insurance. ABI points out that an increased uptake of 10% in property insurance could generate additional premiums of £1.3 billion each year.
However, SMEs may take some persuasion to take action. Research by AXA shows that on average SMEs in the UK are less concerned about climate change now than in 2006. Kim Clemo, AXA’s climate change director, says: “This is especially worrying, as the sceptics even include businesses affected by June’s heavy floods.”
New products
Through ClimateWise, insurers will promote products that insure “climate-friendly” technologies (such as energy efficient technologies, domestic micro-renewable energy generation) and “climate-proof” measures (such as flood defences, green roofing and the use of heavyweight building materials). Lower premiums may be offered to encourage uptake.
Opportunities are also emerging in the health insurance market. ABI says that there could be potential for an increase in private medical cover, especially for very young and the elderly, who may run greater health risks as a result of climate change.
Yet insurers will not be turning their back on high-carbon industries any time soon. Alain Grisay, chief executive of F&C Asset Management, says that despite ClimateWise, these industries will remain vital to mainstream investors to balance market risk. Grisay says this will mean continuing to invest in fossil fuels, such as the coal-fired power plants soon to be built in the UK, until the market in renewable energy generation becomes more stable.
