Sustainability risks in underwriting

You can't have a sustainable business in a non-sustainable world.

The focus of the second event in the UNEP's Principles for Sustainable Insurance Initiative series was on sustainability risks in underwriting, implementing sustainability risk frameworks and underwriting biodiversity and ecosystem risks. A WWF/Swiss Re Institute Report on Spatial Finance and the first ever global sustainability guide for the insurance industry with a focus on the non-life insurance business were launched.

Patrick Raaflaub, Chief Risk Officer of Swiss Re and Pamela Schuermans, Principle Expert on Insurance Policy at the European Insurance and Occupational Pensions Authority (EIPOA) started proceedings.

Opening dialogue: Sustainability risks in insurance

An integrated broad-based risk management approach is superior and sustainable business is good business

You can't have a sustainable business in a non-sustainable world, so we must think of the sustainability of the effect of the business on the environment.

Two fundamental beliefs underpin the advancement of a sustainability agenda. First, that an integrated, broad based risk management approach is superior and secondly that sustainable business is, in the long-term, good business.

For example, Swiss Re was one of the first companies to adopt a truly integrated risk management framework, which integrated various types of risks into one framework. Swiss Re can look back at a history of more than 20 years of a sustainability risk management. Initially focused on topics such as climate change, water and human rights and more recently, also around internal environmental management. This has led to several commitments - net zero greenhouse gas emissions in operations by 2030 and net-zero greenhouse gas emission across the entire business by 2050.

The second belief is that only sustainable business is good business in the long run. This really puts the sustainability agenda at the heart of commercial activity. Much existing business lines up very well with the SDG agenda, so with that in mind, the sustainability agenda can be looked at from, not only a risk or defensive perspective but from an offensive perspective.

Should every insurer have a sustainability ESG framework? 98% thought so in the session poll. James Wallace, Allianz, Thierry Corti, Swiss Re, Helga Tomagnini, MAPFRE Brazil, John Scott, Zurich Insurance Group shared how they are implementing their respective sustainability risk frameworks in their business. And the session gave a launch pad for the first ever guidance to manage ESG risks in the insurance business with a focus on non-life insurance or property and casualty insuranceThe guide shows eight areas where an insurer can carry out possible actions to manage ESG risks in insurance business.

Implementing sustainability risk frameworks in insurance underwriting: Challenges, opportunities and next key actions

Re/insurers play a major role in ensuring resilience in our society

Since 2018 EIOPA has been working on setting expectations for insurers and pension funds in how they reflect sustainability risks and factors. It has a receptive audience. Insurers are keen to play their part in managing and mitigating ESG risks, and to continue to do so in the light of climate change.

EIPOA looks to future work with supervisors and re/insurers to enhance the insurance industry's role to improve the resilience of society. To this end, insurers are increasingly expected to prove how resilient they are to, for example, climate change and to assess the impact of their investment and underwriting practices on the environment or society as a whole. It's clear there is a shared agenda here between market participants and supervisors.

Underwriting biodiversity: Safeguarding natural World Heritage Sites and other protected areas.

Sylvain Vanston, Group Head of Climate and Environment AXA Group. Lasse Wallquist, Senior Sustainability Risk Manager, Swiss Re, Susanne Schmitt, Nature and Spatial Finance at WWF-UK discussed how we can underwrite biodiversity.

Underwriting biodiversity and ecosystem risks: Safeguarding natural World Heritage Sites and other protected areas

Climate change is high on the agenda, but we face a dual challenge, biodiversity loss and climate change. If we solved climate change but lost the natural environment what remains to be protected from climate change? It makes sense to also tackle biodiversity and ecosystem risks.

The International Community is currently working on delivering a post-2020 Global biodiversity framework building a strategic plan for diversity and setting out an ambitious plan to implement broad based action to bring about the transformation in society's relationship with biodiversity. To this end the UN General Assembly declared 2021 – 2030 as the decade on ecosystem restoration. The restoration of our ecosystem is fundamental in achieving SDGs and an efficient and cost-effective way to work with nature to address the most pressing challenges humanity is facing today.

61% of the audience confirmed that biodiversity and ecosystem risk are systematically integrated into their company's risk assessment and insurance underwriting practices. Biodiversity is viewed by insurers as the next frontier of sustainable finance because biodiversity loss, which endangers ecosystemic services, threatens both society and businesses that depend on them and in turn investors and insurers. The insurance industry needs to make it a natural extension of its climate efforts.

A healthy planet is fundamental to having healthy people and a sustainable future for all

The COVID 19 pandemic has brought to light how fragile are our global systems to major shocks. These kind of viruses, zoonotic viruses are closely linked to how we are impacting nature, impacting habitats and creating greater disturbance.

75% of the recent human diseases result from pathogens that have originated from animals and from products from animals. Business as usual is not an option. If we choose to carry on as normal there is a potential loss of 7% of GDP by 2050. The report launched today provides some practical insights into the role of spatial finance and tool and its approaches and what part they could play to integrate biodiversity risk into underwriting and financial decision making.

Spatial finance is a new and emerging field that uses GIS analysis, geospatial analysis combined with, for example, satellite imagery, but also increasingly machine learning to push for new frontiers in finance theory.

Insurance and investors can really contribute to protecting not just World Heritage sites. For example, when it comes to coastal protection a coral reef in Mexico has already been insured because assets such as these provide a service to society and to the economy. Insurers and re/insurers can protect these assets with nature-based solutions.

If the insurance sector, as underwriters and investors, try and take the first steps to integrating diversity risk into risk management systems and process it can get set a shining example for others.

Many thanks to moderators Butch Bacani and Olivia Fabry

Join us for the next event where we'll be looking at how insurance products and services can contribute to achieving the UN Sustainability Development Goals.


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Sustainability Leadership in Insurance

An international, virtual event series convened by UN Environment Programme’s Principles for Sustainable Insurance Initiative and Swiss Re.