HOW THE INSURANCE INDUSTRY CAN PLAY A MORE CRITICAL ROLE IN COMBATING CLIMATE CHANGE Insurance sector communities have invaluable expertise and resources to address society’s climate challenges, but that experience is not fully understood or harnessed into the mainstream climate, sustainable development and finance agenda. COP26 is a strategic opportunity to finally and comprehensively bridge this gap. With COP26 drawing ever nearer, the insurance industry has a gilt-edged opportunity to re¬capture its historic role as a key commercial shepherd of social transition and gain a seat at the main table in Glasgow. Not since the age of industrialisation has global society faced a challenge on the scale of climate change and the insurance sector is uniquely placed to play a leading role in forg¬ing a workable solution; in fact, it is a challenge we are dutybound to accept. When the Paris accord was adopted by 196 nations in 2015, the annual COP meet¬ings instantly became the focal point of global efforts to tackle climate change. While some of the signatory nations have since made progress in building economic resilience against the physical and financial impacts of climate change, the urgency to do more is escala¬ting; the demand for risk mitigation and adaptation strategies is accelerating in parallel. Like few others, the actuarial sciences have a proven track record of providing support for strategic social transition at scale; its role as an architect of the social insurance systems that have underpinned many national reconstructions is well documented.
More modern insurance tools, such as national catastrophe modelling, also have obvious applications to the climate challenge and reinforce our industry’s unique ability to accur¬ately price risk over the longer term. It shouldn’t be surprising that an industry built upon the mathematical and philosophical foundations of the Scottish and wider 18th Century Enlightenment is now well placed to provide assistance in the quantification of climaterelated risks and the evaluation of the related choices and trade-offs. Since the early 1990s, the insurance industry has revolutionised its mainstream assess¬ment of climate-related risks and integrated this into its core pricing, risk controls, regula¬tory disclosure and capital management. A decade ago, led by Munich Re and in con¬cert with public and academic partners, the industry created a global facility to assess the seismic risks to properties, infrastructure and wider assets. In creating the Global Earthquake Model Foundation, the aim was to support better plan¬ning, building codes, investment, insurance and disaster response to help save the millions of lives, livelihoods and assets that were at risk. We now have the opportunity to emulate that am¬bition and provide a programme for building a global resilience model to sup¬port physical climate risk scenarios, stress testing and analysis for the com¬mun¬ities, markets and assets that are exposed. Because building climate resilience is the product of many factors, insurance is not a ‘silver-bullet’ solution. But it is a necessary component because,
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