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Pillar Four: Helping Society Adapt

While our sector is committed to reaching Net Zero in its own operations and activities, we can also play a wider role in helping the customers and stakeholders that we work with adapt to a changing climate – helping them take action to reduce emissions, mitigate the impact of temperature rises and become more resilient to the effects of a changing climate.

On top of the innovative products that will come from individual ABI members, the growing insurtech community and potentially from new entrants into the sector, there are some key areas where we believe our sector can have a unique impact and where the ABI is committed to working collaboratively to help our customers and the stakeholders we work with across the economy adapt.

Maximising the impact of saving for retirement

ABI members have found that many customers want more support to make choices with their pension savings that align with those sustainable choices.

This means ABI members making it as easy as possible for every pension saver to understand the choices available to them – including providing consistent and clear information within product information documents, factsheets and tools available directly to customers and that financial advisers ensure savers can make informed choices.

Through our networks and member groups, the ABI will work to identify

  • The key moments in savings journeys where sustainable choices can be encouraged
  • any policy or regulatory changes needed to enable the right information to be provided at these key moments
  • where best practice can be adopted across the sector
  • how to achieve the consistency needed to allow like-for-like comparisons to be made.

 As a first step to achieving this, the ABI will take forward the following two workstreams

  1. Develop a jargon-buster that will help individual savers understand how ESG and climate concepts relate to their pensions and savings – ensuring they know what to look for when making sustainable choices.
  2. Assess, including through stakeholder consultation, the options for including a category of Sustainable Fund(s) within the ABI Fund Sector Definitions, with the aim of helping savers who want to reduce the carbon footprint of their investments

Encouraging sustainable decisions at key moments after insurance claims

As insurers, we help our customers when unexpected events happen – including when they need home repairs after flooding or fires, or after a motor accident.

Over the coming years, with rapid policy changes expected across these areas (from the rollout of electric vehicles, upgrading the energy efficiency of buildings to reform of social care and increasingly flexible working patterns), the point at which someone makes an insurance claim will be a key moment when they could make a change to a more sustainable alternative.

With the right incentives and options, ABI members can help identify opportunities to increase the uptake of sustainable choices – such as in the following situations

  • switching to an electric vehicle after having their car ‘written off’ (rather than a like-for-like settlement)
  • replacing their gas boiler with a sustainable alternative (rather than installing a new gas boiler)
  • improving the energy efficiency of their home or business property alongside any home repairs needed

The ABI will work with members and engage pro-actively with our counterparts in other economic sectors to define what would be required to enable customers to take sustainable choices while resolving claims – focussing in particular on motor and property claims in the first instance.

Government and regulators must co-ordinate policy making and manufacturer-led initiatives so that customers can access sustainable options as part of their insurance settlement. This will require flexibility and a willingness to design publicly-funded schemes aimed at increasing uptake to interact with insurance claims. Without the right incentives at the right time, these opportunities could be lost.

Encouraging the development of markets for repair and replace

Every day, insurers process £46m in motor and property insurance claims – meaning insurers are responsible for a huge volume of property maintenance, motor repairs and replacing products across the whole of the UK. More needs to be done to encourage re-use, repair and recycling across these insurance claims.

There are some parts of the insurance market which already encourage repair and replace – for example, the ABI Salvage Code is designed to ensure that when a vehicle is ‘written off’, there is clear criteria that allows vehicles and parts to be repaired and then safely returned to the road – with only vehicles that are classified as structurally unsafe removed entirely from the road.

However, there is much more that we can do. In taking forward this Roadmap, the ABI will explore how ABI members can work in partnership with manufacturers and suppliers to achieve this. Issues we will explore include:

  • Encouraging customers to accept repaired or recycled items as part of their settlement, rather than automatically offering brand-new items after a claim
  • Working co-operatively across the sector after a major weather event to reclaim as many damaged items as possible and arrange for these to be transferred to organisations that can re-use or repair them
  • Partnering with the independent healthcare sector to develop safe alternatives to single-use plastic and other unsustainable items in hospitals and healthcare
  • Encouraging the development of a sustainable secondary market for electric vehicles (as early adopters increasingly look to upgrade their current vehicles) and establishing consistent practice for re-using and recycling charging equipment

To support this, the Government will need to build on the ‘Right To Repair’ law announced in March 2021 and encourage investment in the networks and skills required to repair items that are currently treated as waste and ensure policy drives a robust secondary market (rather than just focussing on markets for ‘brand new’ goods).

Maximising the impact of the Bank of England’s CBES Exercise

The 10 largest insurers in the UK – along with the 7 largest banks – are currently completing the Bank of England’s Climate Biennial Exploratory Scenario. This is not a formal ‘stress test’ – but it will provide valuable insights, with each participant required to conduct an extensive data collection, covering either their investment counterparties (for long-term savings providers) and underwriting portfolio (for insurers), and then provide extensive qualitative and quantitative analysis.

The ABI is committed to working with our members to ensure that this exercise results in meaningful insights – when the exercise is complete, the ABI will review our Roadmap and ensure that we have prioritised any areas where further action is required. This will also mean working with the wider sector to ensure that there is further innovation in data gathering, modelling and analysis to address any issues highlighted.

The Bank of England must cross-compare the conclusions against approaches in other sectors of the economy and consider where enhanced data, changes to the regulatory regime and clearer guidance would enhance firms’ approach to climate risk.

In turn, this extensive exercise must inform how the Government implements its Net Zero strategy – in particular, it will be an urgent priority to address any gaps or inconsistencies in the available data and evidence that are highlighted by the exercise.

Supporting a ‘Just Transition’

We recognise that not everybody is starting from the same place in their transition to Net Zero and that the impact of the changes across society will impact the most disadvantaged in societies most.

For many communities, the risks associated with the transition to a Net Zero economy will require as much risks as those associated with the physical impacts of climate change.

We see our sector playing a key role in helping people manage these risks, including:

  • Ensuring there are flexible savings options that encourage sustainable investment across a range of different risk appetites
  • Ensuring insurance products remain affordable and that the cost of insurance cover does not disincentivise more sustainable choices
  • Working with the Government and other stakeholders to identify and prioritise those will need the most help adopting green technology and upgrading buildings
  • Ensuring that there is protection available against the full impact of these changes – so that people are covered not just for the use of new devices and technology adaptations, but also the installation, maintenance and charging infrastructure.
  • Educating customers about the options available to them across the full lifecycle of their insurance and long-term savings products (not just when taking out new policies or at renewal)
  • Working with our partners to ensure the principles and approaches identified in this Roadmap apply across the full insurance and long-term savings value chain

The ABI is committed to ensuring our sector is able to support the most vulnerable across society – we will work to ensure that our approach to Climate Change is aligned to other priorities for the sector, such as supporting vulnerable customers and diversity & inclusion. ABI members remain committed to this and will continue to ensure that the environmental considerations within the ‘ESG’ agenda are aligned with an equally strong focus on social factors and on robust, diverse governance.

The Government and regulators can also support this agenda – to make Climate Change a key factor in every financial decision and transaction, it must be fully embedded into every public policy decision and must not be taken forward in isolation from the focus on ‘levelling up’ and ‘building back better’.