Neal: climate change is biggest opportunity for re/insurance in living memory

The growing movement to shift the global economy away from carbon-polluting industries towards a more sustainable future presents the largest opportunity for the re/insurance markets in living memory, according to  Lloyd’s of London chief executive officer John Neal.

Speaking at a virtual Monte Carlo roundtable focusing on how the industry can tackle the risks posed by shifting climate trends, Neal said that the growing demand for coverage against such risks had to be met by the industry if government targets were to be met.

“Climate change represents perhaps the greatest opportunity in living memory for our industry to step up and support our customers through what will be a period of enormous societal and economic transformation that will radically shift business models and economies as they look to rapidly decarbonise,” he said.

“As an industry, we perhaps know better than anyone else that climate change is a systemic risk like no other, which if left unaddressed will have a dramatic impact on all our lives and all our livelihoods.”

Neal added that Lloyd’s of London and the wider industry were uniquely positioned to provide solutions to businesses, governments and investors in the shift towards net-zero emissions, with a history of innovation in taking on the most complex risks.

“ Lloyd’s and of course the global insurance industry have a vitally important role to play in supporting that transition,” he said.

“Given our experience in risk mitigation and management, disaster resilience, and recoveries, the global insurance industry is in a truly unique position to provide innovative products and services to finance, manage and protect against the rapidly changing risk landscape our customers face as they themselves transition to a more sustainable future.”

A complex issue

Lloyd’s of London head of portfolio risk Kirsten Mitchell-Wallace warned that despite the links being made between recent outlier natural catastrophe events such as wildfires and the flooding seen in Europe this summer, the relationship between climate change and increased severity of events remained complex.

She said the issue remained extremely important for the re/insurance market given that around threequarters of portfolio risks are linked to atmospheric perils, but underscored that it was not a simple relationship for the industry to untangle.

“We are seeing an increase in claims, but climate change is only one potential factor in this. Changes in exposure and land use are very significant factors, as are rising loss costs,” she said.

Mitchell-Wallace added that while attribution studies from previous severe weather events such as hurricanes Harvey and Irma had shown a link between warmer weather and loss frequency and severity, the scientific consensus remained challenging.

She gave the example of flooding as one area where rising sea levels are clearly impacting the loss picture, but said in other geographies and types of peril such as tropical storms the evidence was less clear-cut.

“It is a very complex picture for the distribution of risk across the globe, for specific regions and for the distribution of claims across different return periods,” she said.

Patrick Tiernan, Lloyd’s of London chief of markets, echoed Neal’s sentiment that climate change presented an “enormous” opportunity for the re/insurance industry to provide solutions to clients and partners such as governments and investors, saying the world needed the sector to underpin the transition.

“There is a need for general insurers as an enabler for governments and for the trillions of capital that is sitting with pension funds and other investors to put into this industry that our expertise is needed to put many of their plans in place,” he said.

“With that in mind the opportunity is enormous—it’s an opportunity that fits well with our industry because we are very good at being at the vanguard of what is difficult and what can be measured from the get-go. Our reputation as a bastion for risk taking as an industry can thrive once we go forward.”

However, Tiernan added, the industry could not be content to sit back and wait for the problem to come to them, and urged carriers and brokers to get more directly involved with the shift to net-zero.

“The opportunity is to get into the mixer and work with clients on the transformation of their businesses as they move to decarbonisation for their own investors,” he concluded.