Brokers as stewards: Climate Change

The Journal, Chartered Insurance Institute

November 28, 2023

When I was invited to write this piece for the Insurance Brokers Association of India (IBAI) – some months ago – the net-zero insurance alliance (#NZIA) implosion was a dominant thought. Global insurers abdicated an opportunity to own and address climate breakdown. Now this scorecard!

Is there another possibility? Could some international insurance broker/s take on the transformative role?

In a scenario where the fossil fuel industry was to strand – it could not only impair risk carriers but all those in the supply chain including intermediaries facilitating such a portfolio.

Apart from fossil fuel becoming history, Climate breakdown would deal a body blow to the current format of insurance both in terms of affordability and availability. Could Parametric be the new avatar?  Any nimble player/s who may leverage such scale and complexity of disruption?

Cambridge Institute for Sustainability Leadership’s (CISL) new briefing – Risk sharing for Loss and Damage: Scaling up protection for the Global South offers a breakthrough in the design of the global architecture for Loss and Damage (L&D).

L&D in the international policy debate broadly refers to efforts to “avert, minimise and address loss and damage associated with climate change impacts, especially in developing countries that are particularly vulnerable to the adverse effects of climate change”. This blog provides a backgrounder.

It would use the economic efficiency of risk capital markets, which can convert modest annual flows from donors into major contractual entitlements for vulnerable countries when disasters strike, now and through to 2050.

Members of Howden Climate Parametrics modelled the technical cost and financial protection that could be achieved by using some L&D funds to access international risk capital markets. The action plan proposes to protect all 30 small climate vulnerable countries (population less than one million), from losing more than 10% of their GDP from climate shocks. It also advocated providing each L&D eligible country with $10m of annual premium to protect their highest priority needs.

The L&D domain includes Small Island Developing States (#SIDS), Least Developed Countries (#LDCs) and Vulnerable Twenty (#V20).

All this is happening outside the ambit of traditional insurance. The format does not entail a transactional relationship – always taken for granted. A broker facilitating an out of the box solution. Howden just took a significant first step. Is this a writing on the wall?