In this extraordinary year, we must step up to tackle climate change

As communities around the world pick themselves up after a string of devastating storms, floods and weather shocks, we are reminded about the impact of climate change.

The Lloyd’s market has paid almost $2bn (￡1.5bn) in claims for natural catastrophes so far this year. It could turn out to be one of the costliest years on record for natural disasters, a fact that will no doubt reinforce determination to tackle this growing problem. We know that the frequency and cost of natural disasters continues to rise, with direct losses over the past decade estimated at $1.4 trillion globally.

Tackling a multi-faceted problem like climate change is only possible through collective action and collective responsibility. And I honestly think there’s more that the insurance sector could be doing.

As insurers we have huge responsibility because we take actions that can shape the commercial or individual behaviour of other people.

There are two main levers.

The first is providing and pricing the insurance product. If an insurance company offers premium discounts to people who build more climate-resilient homes, then it encourages more of them to do this. Perhaps there are other, dare I say, more creative ways that we can wield influence?

We know, for example, that coastal habitats play a role in risk reduction by dampening the effects of coastal storms. Couldn’t we together with governments find a way for insurance to help finance the protection of these natural barriers?

One suggestion I have heard is to insure the habitat itself, so if it is damaged after an event we could rebuild or restore it. As well as helping communities withstand the impact of disasters, insurance also helps them rebuild afterwards.

Claims payments serve all manner of purposes, helping businesses reopen quickly, restoring vital public services like power, so people can heat their homes, or clearing roads, railways and airstrips, so commerce can be restored or vital aid delivered to those in need.

On a more personal level, claims can go towards repairing boats so fishermen can get back to sea, or mending machinery so farmers can re-sow their fields. All of this helps local communities get back up and running.

While the fundamental priority for insurers will always be to pay claims promptly, particularly when the chips are down, we also have a responsibility to help tackle the causes of the problems too. This brings me to my second climate action lever – helping the transition to a low-carbon economy.

Around the world the insurance sector takes in billions of dollars every year in premiums. Some of this money is then invested to help it grow and to make sure capital is available to pay claims. What that means is that we can help to influence certain behaviours through our investments – by choosing sustainable or low-carbon stocks, for example.

Looking at the policies of the Lloyd’s Corporation, the body that oversees the market, while we already make a considerable effort to reduce our own environmental impact, I felt that more could be done to incorporate climate considerations into our investment decisions.

We have therefore decided to implement a coal exclusion policy as part of a responsible investment strategy for the central mutual fund that sits behind every insurance policy written by the Lloyd’s market. That means that in the areas of our portfolio where we can directly influence investment decisions we will avoid investing in companies that are involved only in coal. 

Actions such as these are good. But there are plenty more ways our sector can make a difference. We must harness the collective will of policymakers, businesses and communities to tackle climate change, by building up resilience, reducing emissions and helping the transition to a low-carbon economy. These are areas where the insurance sector can make a real difference – and build a brighter future for all.

This article originally ran in The Daily Telegraph on 2 December 2017