Download Sustainable Claims Management

Short-term Insurance Strategic Risk Forum: Climate
Change and its Relevance to the South African Market
– 10th June 3013
Understanding Insurer Responses
Greg Lowe, Head of Sustainability, AON EMEA
Why should insurers care about climate risk?
A) Changing Risk Patterns
120.0
USD bn, at 2011 prices
2005:
Hurricanes Katrina, Rita,
Wilma
100.0
2004:
Hurricanes Ivan,
Charley, Frances
80.0
2011:
Japan , NZ EQs,
Thailand flood
2001:
9/11 attacks
60.0
1999:
Winter Storm
Lothar
1992:
Hurricane Andrew
40.0
2008:
Hurricanes Ike,
Gustav
1994:
Northridge EQ
2010:
Chile, NZ
EQs
20.0
0.0
1970
1975
1980
Earthquakes/tsunamis
1985
1990
Man-made disasters
1995
2000
2005
2010
Weather-related natural catastrophes
•Source: Swiss Re, sigma No 2/2012
Multiple Stresses
“Instability is likely to be greatest in areas of multiple
environmental stress”
Source: The DCDC Global Strategic Trends Programme 2007-2036- UK Government Ministry of Defence
b) Public Opinion
Need to shape public policy, manage reputation and respond to
customer expectations.
An international IPSOS Survey demonstrated that:
 61% of those polled think that insurers have a role to play in limiting
risks related to climate change
 57% that they can help people adapt to the consequences of climate
change.
 17% of those surveyed, claimed climate change is “already”
affecting the type of insurance they buy - 39% believe that this will
happen in the short term and 31%, in the longer term.
Governments and public institutions are also increasingly looking to
insurers to play a role in signalling climate risk effectively.
c) Regulation
Source: International Energy Authority
Action Together: ClimateWise
ClimateWise exists to be the global insurance industry’s
leadership group to drive action on climate change risk.
•
2006 – 2007: DESIGN
Industry leaders agree and launch ClimateWise Principles
•
2008 – 2009: EMBEDDING
Members use Principles as framework for action with the reporting commitment
serving as an accountability mechanism for independent review
•
2010 – 2011: BUILDING COLLABORATION
Step-change towards pro-active collaborations
•
NOW 2013- 2014: ACHIEVING IMPACT
Focus on integration into business strategies and the development of
partnerships to achieve greater impact
ClimateWise Principles
1.
Lead in risk analysis...
2.
Inform public policy making...
3.
Support climate awareness amongst customers...
4.
Incorporate climate change into investment strategies...
5.
Reduce environmental impact of business…
6.
Report and be accountable...
ClimateWise Membership
Strategic
Partnerships:
Risk Analysis – Strategic Considerations
Uninsurable risk:
- As the severity and frequency of risk increases insurers will need to think
differently if they are to provide risk solutions.
Typically insurers have focused on low frequency, high severity events.
What is their role in addressing climate change ‘tipping points’ i.e. melting
sea ice, sea level rise?
Uninsured risk:
- In advanced economies the insurance recovery on large weather events is
50% of economic loss. In emerging economies it is 7%.
Interconnectedness of risk
- Human-induced changes to land cover and the buffering capacity of
ecosystems are of equal or greater importance in driving increasing risks,
when compared to climate change.
Risk Analysis – Aon Response
Research Partnerships are Key
- Aon Benfield Research is a collaboration with
19 leading research institutions globally, to
enable re/insurers, their clients, governments
and non-governmental organizations (NGOs)
to protect and grow their organizations in the
face of natural hazards and socio-economic
risks.
Scenario Planning Helps Identify Needs
- To gauge our own challenges, we use scenario
planning to look at what areas of our business
and the wider industry are prepared for future
changes in climate, and what areas need
future proofing.
Risk Analysis – Collaboration - Health
Challenge
What does climate change mean for insurance health
and protection provision?
Worked
with
leading environmental epidemiologists and public health
practitioners
Key
outputs
- Recommendations for coding and collecting data
- Opportunities for cross-sector health partnerships
- Consideration of links between life and non-life cover
Customer relations – Strategic Considerations
•
Information: Costs for some risk causes will trend upwards; insurers
should aim to make “customers” aware of this so they can plan for it.
•
Products: New products to meet emerging risk challenges e.g.
– Weather derivatives
– New technologies e.g. for energy production.
•
New Customers: possible new classes of customer for most affected risk
areas
– State or municipal government
– Communities in areas vulnerable to foreseeable increases in risk
exposure
– Micro-insurance communities.
Customer relations – Aon Response
Make it Easy
-
Customers want to do the right thing, but they want it included as part of a
standard product/service. Our UK TRIO product makes sustainable
reinstatement clauses standard in the policy at no extra cost. We need
more insurers supporting brokers in this capacity.
Understand Your Customer Base
-
How green is your customer? When dealing with corporate clients,
understanding where they stand on climate change and sustainability is
useful for building relationships and developing new products. We are in
the early stages of building this into the sales process and it allows us to
flex our innovation better by understanding customer needs in this space.
Customer relations – Collaboration Energy
Challenge
What are the opportunities for insurers to facilitate
and profit from low carbon technologies?
Worked with
Energy companies
Carbon Capture and Storage Association
Key outputs
Report identifying insurance products that could
contribute to managing liabilities associated with
Carbon Capture and Storage and therefore
contribute to its commercial viability
Investment – Strategic Considerations
At $25 trillion insurers control more than 11% of global financial assets and
together with pension funds, another industry which makes long term promises
to pay, need to understand both the risks and opportunities faced by these
assets due to climate change
Assets:
• Increased risk
to some long
term asset
classes of
premature
obsolescence
• New asset
classes
Investment – Collaboration
Challenge
What does excellence in
incorporating low carbon decision
making in insurance and
reinsurance investment strategies
look like?
Key outputs
A framework for decision making
across asset classes considering
strategic asset allocation and
asset liability management;
thematic allocations and portfolio
mandates.
Policy & Partnerships – Strategic Considerations
Communicating consistently
Are insurers giving consistent messages to stakeholders in terms of
promoting an economy that is resilient to climate risk?
Taking leadership
-
What is the role of insurers in promoting actions by other stakeholders?
Policy & Partnerships – Aon response
We Can’t Do It Alone
-
The best results come from
collaboration. While we have
relationships with policymakers,
our best engagements come with
groups such as ClimateWise,
research bodies, or insurance
trade bodies. An industry voice is
always strongest.
Impact
Forecasting
Academic &
Industry
Partners
Driving the
Development
Individual
component
Development
Understanding all
assumptions
taken by partners
Working with IF
– “Hands on”
cooperation
Owners of the
models
Relationships
based on key
deliverables
Policy & Partnerships – Collaboration – Urban
Resilience
Challenge: How can city authorities, long term fixed asset owners and
insurers contribute to city resilience (focussed on the US)
Working with:
From Managing Disasters to Managing Risks
Katharine Thoday
ClimateWise Secretariat
Climate Risk Management
Documenting existing initiatives

Majority of schemes are agricultural (both index and indemnity based) followed by:
- sovereign disaster risk
- micro-insurance
- property catastrophe

Majority of schemes in South America and Caribbean, followed by Asia, Pacific and
finally Africa

Majority of schemes insure individuals, Governments or meso-level organisations.
SME’s rarely considered
The role of risk reduction
The full potential of utilizing risk transfer for adaptation is far from exhausted
Making the transition
Moving from
business continuity
to comprehensive
climate risk
management
Customer relations
Turning climate risk
into business
opportunity
Creating
shared
value
Policies &
Partnerships
Building publicprivate risk
governance
Integrating climate
risk into
investment
Risk analysis
Disclosing climate
risk on the
balance sheet
International frameworks
Priority Actions:
1. Ensure that disaster risk reduction is a national and a local priority with a strong
institutional basis for implementation.
2. Identify, assess and monitor disaster risks
3. Use knowledge, innovation and education to build a culture of safety and
resilience at all levels.
4. Reduce the underlying risk factors.
5. Strengthen disaster preparedness for effective response at all levels.
International frameworks
http://www.preventionweb.net/
The business case for disaster risk reduction
- Definition of clear responsibilities across public and private actors
- Standardisation risk assessment approaches
- Targets and indicators i.e.
- reducing risk in building stock by a determined factor
- No. increase in absolute poverty levels in a year of disaster
- No. of measures introduced at community level
International frameworks
Cancun Adaptation Framework
 Assessing
 Addressing
 Enhancing implementation – National Adaptation Plans
- Possible development of a climate risk insurance facility to address
- Options for risk management and reduction, risk sharing and transfer
mechanisms such as insurance, including options for micro-insurance, and
resilience building, including through economic diversification;
Influencing change – collective influence
CHALLENGE:
How can insurers reduce the environmental
impact of the claims process so as to
contribute cost-effectively to mitigating risk?
ASSESSING
KNOWLEDGE
December 2010: Report with
recommendations for sustainable supply
chain management
COMMUNICATING
AS A SECTOR
UK Industry-wide guidance on Sustainable
Claims Management based on carbon foot-printing of domestic
property claims
Influencing Building Damage Management Specialists
Influencing change – benchmarking & integration
Climate change issues are no longer considered a ‘separate’ issue
to be dealt with by a sustainability or corporate responsibility team
Gold rating characteristics:
1.
Strong strategic statement on
the importance of climate risk,
specifically referencing core
functions impacted
2.
Well articulated plan to
address the risks/opportunities
arising
3.
Evidence of action to address
the challenges, referencing
core functions above
Influencing change – Networked knowledge
Role for Southern African Insurers
ClimateWise members want to be able to:
• Reflect issues and experiences relevant to SAIA members and the
Southern African Insurance market in ClimateWise activities and
materials
• Support action to address climate risk in the Southern African
market
Challenges and opportunities
– How we miss what we can’t currently measure.
– How to build internal capacity.
– The balance between making decisions based on
avoiding risk as opposed to taken advantage of
opportunities.
– Valuing the long term.
– The role of insurers in challenging the short termism
of Governments and macroeconomic frameworks that
also don’t account for ‘externalities’.