IDF Summit: Why insurance is at the heart of a more climate-resilient world

When finance ministers at the G7 summit announced they were supporting the mandatory reporting of climate risks by banks and corporations, they did so with the support of both the International Monetary Fund (IMF) and the World Bank.

Both IMF managing director Kristalina Georgieva and World Bank president David Malpass took part in the G7 talks, and a few days later explained their thinking on climate risk in greater detail to the insurance industry.

The pair spoke alongside former Bank of England governor Mark Carney at the Insurance Development Forum Summit 2021 to explain the role that the insurance industry can play in managing and mitigating climate risks to build a more resilient world.

Better understanding of the risks

“This is an industry that knows first-hand the physical risks of climate change,” said Carney, speaking alongside Georgieva and Malpass in two panel sessions chaired by Ivo Menzinger, Swiss Re managing director of Public Sector Solutions, EMEA.

“Since the 1980s, the number of registered extreme weather-related loss events has tripled. Those costs have risen eight-fold in real terms, to almost $100 billion on average a year.”

So what can be done to make the world more climate resilient?

Start by assessing the climate risks, said Carney – especially in the most climate-vulnerable countries.

He added that the insurance industry had a vast array of tools and data to help governments do this. Carney called upon the insurance industry to “use its balance sheet and expertise to build a race to resilience”.

Likewise, David Malpass said the World Bank – which has 35% of its balance sheet committed to climate-related activities – needed the insurance industry’s expertise to help better understand climate risks. In particular, he asked insurers to work with the World Bank on shared climate objectives in the following ways: by helping to improve diagnostics; by analysing the risks around decarbonisation routes such as nuclear and hydrogen energy; and by working collaboratively on natural catastrophe insurance for the countries most threatened by climate change.

A critical partnership

Kristalina Georgieva echoed Malpass and Carney’s emphasis on the insurance industry as a vital partner for building resilience.

Tackling climate change, she said, requires a multi-institutional approach in the face of rapidly growing risks and “there is no doubt that the insurance industry plays a tremendous role”.

Georgieva suggested three ways in which the industry could complement the IMF’s efforts:

  • Building resilience to climate shocks, and accelerating the transition to the new climate economy
  • Identifying and managing climate-related financial risks for the insurance industry itself
  • And finally, capturing the potential of the insurance industry to be a source of financing in the transformation to a more resilient society.

“We support countries in developing and adopting insurance products that are forward-leaning in this new world of a rapidly changing climate,” she said.

Systemic shift

All of the panellists agreed that the G7 commitment to more transparent corporate reporting represented a huge opportunity to bring about systemic shifts in climate finance and climate resilience.

The G7 announcement comes just five months before COP26. The conference, which will be hosted by the UK in Glasgow in November, has the potential to be the most significant event in battling climate change since COP21 in Paris, 2015.

For Carney, who serves as COP26 advisor to the UK government, the insurance industry is in a unique position to help achieve a key COP26 objective: that every financial decision takes climate change into account.

For Georgieva, with the agreement at the G7 summit and the potential to go even further at COP26, 2021 represents a very special moment in the battle against climate change.

“We are at the point when the world is faced with a very real choice,” said Georgieva.

“We’re going to take decisive action on the scale that will change the trajectory that, so far, has been dangerously tilted towards way above a one and a half degrees Celsius increase in global temperature, which will all be devastating impacts.

“Are we going to get the courage to do it, or not?”

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The world is currently facing major challenges and tremendous opportunities. Many of these are associated with climate change and the speedy development of digitalisation.