'Walk the talk': insurers urged to lift climate resilience gameplan

Insurers may not be matching their rhetoric with action when it comes to addressing climate change impact on their business, a report from non-profit financial services body Efma and consultancy Capgemini has found.

While the industry says it is worried about climate change, with 44% of insurance executives ranking it as a top risk, only 43% have announced a net-zero emissions target and some don’t have a clear mandate or tangible goals, according to the inaugural study, Walking the Talk: How insurers can lead climate change resiliency.

“Insurers acknowledge climate change impact, but are they walking the talk?” the report says.

“To truly lead the climate resiliency journey, all insurers must revisit their propositions and balance risk prevention with risk management.”

The report analysed what insurers globally, including in Australia, have said about tackling climate change going back to 2015 and found they have consistently acknowledged the challenges posed, including on future profitability and the prospect of worsening losses from natural catastrophes.

However just 8% of insurers are on course to achieve climate resiliency, the report says, adding many in the industry have yet to develop a strategy that will help their business adapt and even thrive as global warming takes hold.

“While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies,” Efma CEO John Berry said.

“As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognise the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”

The report says climate change presents a unique opportunity for the industry, citing studies that project property and casualty premiums globally will rise by $US2.5 trillion ($3.6 trillion) over the next 20 years to $US4.3 trillion ($6.1 trillion) by 2040.

Climate change will drive 30-40% of the projected increase in premiums, and insurers hoping to capture a slice of the growing revenue pie need to review their climate adaptation business strategies.

More than 30% of insurers restrict investment in unsustainable companies, and more than 20% restrict coverage to unsustainable companies but these may not be sufficient.

“Fundamental business model changes are required,” the report says. “Future-focused insurers will embed climate strategies into their operating and business models.”

The report is based on data from the 2022 Global Insurance Voice of the Customer Survey and the 2022 Global Insurance Executive Interviews covering 29 economies including Australia, the US, the UK and other major insurance markets.

Click here to access the report.