Is climate change making the future uninsurable?

“Is there a ‘Lehman moment’ in the insurance industry?” This thought-provoking question by Peter De Keyzer sparked the first post pandemic edition of our Fin&Tonic roundtable discussion. The aim: to spotlight the crucial turning point the insurance industry faces in response to climate change. Nele Vandaele (KBC Insurance), Marc Purnal (Belfius), Pedro Matthynssens (Vanbreda), and Sophie Misselyn (P&V Group) shared their perspectives on its impact and how it informs underwriting decisions.

What were their key takeaways from this insightful discussion? Let’s find out.

Sustainable insurance is a complex task of balancing risks and responsibilities

The insurance industry holds a critical role in shaping the future through its underwriting decisions, especially in its efforts to support the transition to net-zero emissions. However, determining whether to insure a company or activity is a complex decision that requires a careful balancing of risks and responsibilities. Discontinuing coverage due to non-compliance with changing climate regulations or industry trends is not a viable solution. Insurance companies must approach these decisions with sensitivity, prioritising their responsibility to provide proper protection for their clients while supporting sustainability.

One of the key points made during the panel discussion was the significance of encouraging clients to assume greater responsibility for preventing certain types of risk in order to qualify for insurance coverage. “Taking responsibility at the source is really important. And in biogas in Germany for example, prevention is mandated by higher-level legislation, resulting in much lower incidence of risk” said Nele Vandaele, GM product policy Non-Life at KBC Insurance.

“One thing we are doing at the insurance level is creating awareness and becoming much more conscious of our own footprint. We follow our investments closely and are continuously reducing and compensating the shrinking footprint of our own operations. Additionally, we offer a lot more disclosure, showing which part of our premiums covers climate risk and our various exposures.” adds Marc Purnal, Head of Property Product Management at Belfius.

“In our role as insurers, we need to apply pressure and encourage change over time,” Nele continues. “The push towards sustainability will increase because companies that are slow to adopt sustainability practices will struggle to secure financing in the long run, which will lead to a self-regulating system.”

Insurer coalitions help tackle the challenges of climate change

In order to tackle the challenges of climate change, transparency and global data are crucial and require innovative risk models. Insurance companies can benefit from working together in coalitions to develop and maintain these new models by sharing best practices, experiences and data, fostering a shared vision for change, and promoting the wider adoption of sustainable practices. The recent signing of a net-zero impact charter by 29 insurers, representing 15% of the global market share, is a clear indication that this approach is gaining momentum. They have pledged to achieve net-zero emissions by 2050 and refuse to underwrite any risks that do not align with this goal.

Sophie Misselyn, Managing Director at P&V notes; “Many insurance companies have already taken an active role in climate action, collaborating with the United Nations Office for Disaster Risk Reduction (UNDRR) on climate frameworks since as early as 2015.” Despite these efforts, the insurance industry cannot tackle the challenges of climate change alone. Collaboration between the industry and the government is essential to prevent and mitigate its impacts. “As insurers, we can incentivise climate risk reduction through pricing and prevention, but we need to work together with governments to have a greater impact,” adds Sophie.

The shift towards a global approach to risk management requires public-private solutions

As funding, data, and expertise remain scarce within individual countries, there is a growing trend towards adopting a more global approach to risk management. Governments have a significant responsibility in establishing a transparent and efficient regulatory framework to facilitate this transition. However, navigating the rapidly changing landscape of risk management requires a proactive approach from the insurance industry as well.

Pedro Matthynssens, CEO Risk & Benefits at VanBreda stresses the need for such action, stating that, “We’ve talked about an upcoming Lehman moment, but in truth, it’s already here. Companies in high-risk categories such as the food industry, lawyers, doctors, and large construction sites are becoming increasingly difficult to insure in Belgium due to the scarcity of insurers that cover them. Despite this challenge, finding solutions for these clients is imperative.”

Nele explains, “The reinsurers capacities are essential elements in order to continue underwriting and insure events such as the recent floods in Wallonia. Cooperation and a shared understanding of the rules and regulations are therefore vital to maintain a trustworthy global presence.”

According to Marc, “The real power to mitigate or prevent damage lies with the government, as they create the regulatory framework within which we need to work. Together with the government, we can form a solution. But we can’t do it alone, and neither can the government.” In other words, collaboration and a clear regulatory framework are essential in facilitating a successful global approach to risk management.

A Lehman moment in insurance?

With the need for collaboration, innovative models, and effective regulation, the industry has the power to drive transformative change and leave a lasting impact. The real question therefore is: Will the insurance industry seize the opportunities and responsibilities that come with its expanding role in this shift, and effectively underwrite the future, or will it fall short of the challenge and simply undergo the transformation instead of driving it?