Beyond COVID-19: Three paths to a sustainable future
Every headline these days seems to focus on the COVID-19 crisis. The ongoing pandemic is front of mind for most people, understandably and rightly so. However I see constant reminders of another pressing issue, which is also a pervasive threat: climate change.
To escape the confinement of home, I regularly walk in the woods nearby. Recently, signs appeared advising of a ban on lighting campfires due to concerns of starting forest fires – a grim reminder of the awful summer that just finished in Australia, my previous home.
Here in Europe, lakes and rivers have dried out significantly in recent weeks and many areas are facing drought conditions. Generally, we experienced noticeably warmer weather this past winter.
I don't want to get into the debate about causation, but I can say that there are palpable signs of climate change in all parts of the world that I have called my home. My thoughts are so often drawn to how we, together with our clients, can better support sustainable solutions with better insurance products.
Adopting a sustainable business model
Like many of our clients, Swiss Re signed the Paris Pledge for Action in 2015 and most recently the "Business Ambition for 1.5 °C" at the UN Climate Action Summit in 2019. The aim of these initiatives is to strengthen the global response to climate change and advance a low-carbon future. Since then we've taken various steps to decarbonise our business model. This includes incorporating sustainability into our underwriting and applying a new lens to our portfolio steering in line with the UN Sustainable Development Goals.
Perhaps most importantly, our approach to sustainability challenges our conventional way of thinking. We must always ask ourselves the question: how does the business we write impact, support or detract from sustainability? As we move ahead in our journey together with our partners, we're bringing more and more new sustainability products and solutions to market. We have strong ambitions here, and I'd like to highlight three key areas where we see particular opportunities for us and our clients.
Supporting low carbon transportation
Under legislation issued prior to the COVID-19 outbreak, Chinese cities focused on banning vehicles that have traditional combustion engines from the roads, replacing them with New Energy Vehicles (NEVs) to help reduce greenhouse gas emissions. This trend comes with a new set of challenges for the automotive industry and its stakeholders, not only around battery failure, but also around sustainability, and consumer peace of mind.
In response, Swiss Re has developed solutions, such as a new extended warranty product, providing long term protection against battery failure. Our experts have also been looking at the broader changes in mobility and how to address these holistically. The aim here is to leverage opportunities around connected, automated and shared vehicles and create new insurance propositions. NEVs are connected vehicles and generate an enormous quantity of data. Swiss Re's experts developed an innovative approach to risk scoring using such data.
Drought is farmers' worst nightmare
Data and technology are at the forefront of our solutions which we are applying to Agriculture as well. According to the latest Swiss Re Institute's sigma publication, Agriculture is a line of business highly susceptible to climate change. Severe drought impacts crop yields and earlier starts to the growing cycle can make crops more vulnerable to extreme frost events.
Until recently no insurance against such events was offered. Swiss Re's Soil Moisture Index is closing this protection gap. It is accurate, efficient, globally scalable and fully digital – utilising satellite imagery. We are now making it available in 10 countries to farmers who want to protect their crops.
Closing the natcat protection gap
Scientific evidence is clear: climate change is affecting natural catastrophe activity. Many are starting to ask for impact assessments covering future climate change scenarios. Swiss Re is embedding macro trends such as climate change and urbanisation in the NatCat underwriting processes. Assessing its impact requires modification of NatCat models and re-running of these models on the client's portfolio.
We are working on a prototype, whereby by implementing different climate change scenarios in Swiss Re’s proprietary NatCat models, we will be able to run exposure with current versus future climate change scenarios. We will then be able to assess the impact on a client's portfolio in terms of expected loss, tail events and geographical differences. This, in turn, can be compared to the overall market to assess how portfolio steering can improve future portfolio resilience.
Science leads us and our partners to focus on scenarios of 2030 or 2050. While this is important, we also need to focus on the now and explore how our climate change expertise can help us better prepare for the future by taking action today.