EY: How the insurance industry can boldly shape a more sustainable future
Executive summary :
Why the insurance industry must play a more critical role in combating the climate crisis and improving sustainability.
As climate change gains movement as a global issue, the insurance industry is weighing in on the debate and the role it will play on the world stage. Climate talks, carbon offsets and the future of the planet were key discussion points at COP25, the 25th UN Conference of the Parties on climate change in December 2019. And the UN’s Emission Gap Report 2019 highlights that the goal of holding climate change at 1.5°C is nearly impossible to reach. Rather, the planet is on track for 3.2°C of warming above pre-industrial level by 2100.
According to the UN, this means:
- -23% global GDP impact
- +28% likelihood of a Category 4 to 5 cyclone
- +70% in extreme rainfall or about 275m people worldwide in areas that will be flooded and inhabitable
Closing the protection gap
As mentioned in our 2020 Global Insurance Outlooks (pdf), insurers are uniquely positioned to help people, companies and communities recognize the need for more protection and to close the massive natural catastrophe-related protection gap that currently exists. According to Swiss Re, this gap now accounts for US$221b, with catastrophe losses at 29%, the same level of two decades ago.
An important role
The insurance industry is aware of the importance of its role. As early as 2012, the UNEP FI Principles for Sustainable Insurance were launched to focus on embedding environmental, social and governance issues in insurance decision-making, raise awareness of the same with clients and business partners, and promote action with governments, regulators and key stakeholders.
Many insurers are signatories to these principles and some of the most forward-looking ones have also committed to become carbon neutral by 2050.
Regulators are also increasingly active in this space and climate change is finding its way into regulatory frameworks and capital regimes of insurers.
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