Industry reports offer climate change solutions
by Resolve Editor Kate Tilley
Resolve explores some of the latest findings from industry reports about the impacts of climate change and some potential solutions.
IAG NZ has released its fourth annual 2021 climate change report, compiled after a survey, first held in 2018.
The findings highlight that New Zealand isn’t making the progress it needs to and that government and business must do more. IAG’s findings show more than 80% of those surveyed think droughts, floods, bushfires and storms will be more intense and coastal areas in danger of inundation from sea-level rises.
New Zealanders acknowledge the importance of climate change, with 79% agreeing it’s important to them personally and 69% that they have become more concerned in recent years.
But they think government and business need to do more and are not confident of climate ambitions being met – 39% think the NZ Government’s response to climate change is good and 28% think it is poor. For business’s response, it’s 18% good, 53% poor.
They want insurers to reflect the impacts of climate change in their underwriting:
- 45% think insurers should raise premiums for homes and businesses that face greater risk
- 35% think insurers should stop supporting customers in locations where the risk is too great
- 47% think the government should step in when insurers and banks pull back from insurance and lending in high-risk locations.
Carbon removal solutions
A Swiss Re Institute report on climate change and carbon reduction, The insurance rationale for carbon removal solutions, says that, to limit global warming to 2015 Paris Accord levels, the world’s net emissions of greenhouse gases need to drop to zero by 2050.
The authors argue the re/insurance industry can be a key facilitator of the necessary continued development of the carbon removal industry and the main barrier to deployment of carbon removal is the lack of business case. “In the absence of carbon pricing in many parts of the world, society disposes of carbon into the atmosphere at will.”
Re/insurers can help in three ways:
- They can improve the bankability of removal projects by providing standard engineering and P&C insurance. Some ecosystems, like forests or coral reefs, can be insured against sudden extreme weather events, like storms. More challenging are long-term liability exposures arising from the risk of storage reversal.
- As institutional investors, re/insurers can provide financing for removal projects and infrastructure.
- Re/insurers can be early buyers of carbon removal certificates to balance their own footprint. This may open doors for underwriters and asset managers to access new risk pools and asset classes.
Download the full report here.
Forest management to reduce bushfire risks
Willis Towers Watson and The Nature Conservancy have published a report that shows how ecological forest management – which reduces the risk of severe bushfires – can be combined with insurance and significantly cut insurance costs.
The report, Wildfire resilience insurance: Quantifying the risk reduction of ecological forestry with insurance, finds the practice known as ecological forestry, which includes prescribed burns and removing smaller trees and other vegetation in overgrown forests (ie, thinning), leads to decreases in total insurance premiums by 41% for homes and a range of decreases for commercial property, while also reducing the likelihood of extreme fires in these communities.
The report explores how the insurance savings from ecological forestry could be captured and applied to pay debt service on bonds which would be issued to pay for ecological forest treatment. In that way, the insurance savings can contribute to funding or financing the ecological forest treatment, creating a “virtuous circle”.