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COP26: Risk Sharing in the climate emergency - A call to action for insurers, regulators and governments

Ben Wilson new.PNGThe insurance and long-term savings sector must do all it can to help combat the climate emergency, Ben Wilson, Director of Corporate Affairs and Climate Change outlined in his speech to our COP 26 event, held in association with ClimateWise and Glasgow City Council on 3 November. 


A report from US president Lyndon Johnson’s Science Committee in 1965 stated rising levels of carbon “may be sufficient to create marked changes in climate” that “could be deleterious from the point of view of human beings”. Some 56 years later, it is easy to get downbeat staring down the barrel of the climate change gun. However, international efforts to combat climate change have produced a remarkable consensus about the need to cooperate on a scale never seen before.

More than most sectors, the insurance and long-term savings industry knows the climate change is happening now. The sector’s role in helping society absorb financial shocks when disasters happen means we have always been on the frontline. We understand that climate change itself represents an existential threat – not just to the planet but to our industry itself.

A business-as-usual approach to climate will destroy the insurance business model. It’s not that insurers will be unable to ‘price’ the risk - there will simply be too much risk in the system for the average person to afford much of what we sell.

Our sector is incredibly influential. Nobody knows if we will pull it off - but we definitely can’t if too many people sit on the sidelines. It is an important, terrifying, nail-biting but also very exciting time to be part of industry, and our society. The ABI and its members will do everything they can to rise to the challenge.


In comments previewing COP26, the Prime Minister Boris Johnson talked about ‘Team World’ being five to one down at half-time. To adopt the sporting metaphor, the insurance sector can be a star player in this comeback to preserve civilisation. As defenders or goal-keepers through our central role as risk managers. As creative midfielders, innovating through green products or de-risking the investments of others through our underwriting. As team managers through the transformational role we can play through engagement and stewardship in investing and underwriting. And as goal scorers – institutional investors who make match-winning contributions by funding green technologies and renewable energy.

Our sector is among a small handful of industries that can be the biggest change-makers. The moral and the business case is, therefore, clear. And governments, regulators, staff – and most importantly our customers – expect it.

That’s why a group of 10 leading CEOs from the UK’s insurance and long-term savings came together to agree the ABI’s Climate Change Roadmap published earlier this year. It sets milestones to meet by 2025; a 2030 goal of 50% reduction in greenhouse gas emissions; and the ultimate goal of reaching net zero by 2050. It was the first national insurance trade association plan of this kind. It was endorsed by Mark Carney, the UK and Scottish Governments and the WWF – as well as by Climate Wise. And it’s received worldwide interest – from Italy, Australia, Holland and elsewhere since.

Interventions needed

Of course, it’s not possible for the insurance sector to change what is unquestionably the world’s biggest potential market failure on our own. Significant interventions from government and regulators are needed, and the government itself is clear that private finance is critical.

For the UK to meet its 2035 target of a 78% reduction in emissions, £2.7trn of investment is needed. ABI research found that members could invest as much as £0.9trn. However, significant regulatory and market reform is needed to unlock this investment. Regulators need to work closely with the UK Infrastructure Bank, government energy experts and the Environment Agency to identify where investment is essential to reach Net Zero or manage climate risk. Reforming the solvency II matching adjustment could free up £95bn from the UK’s long-term savings sector while still upholding high level protections for customers. Finally, parts of the international financial architecture need to change. The ABI agrees with the Glasgow Finance Alliance for Net Zero that we must “price the externality of carbon emissions”.


All that said, it would be wrong not to also acknowledge major progress the Prudential Regulation Authority and Financial Conduct Authority have made on climate risk. This includes the recently completed ground-breaking climate biennial exploratory scenario exercise – stress testing the resilience of major firms. This represents national and global leadership.

The ABI has been a founding member of the University of Cambridge Institute for Sustainability Leadership’s Climate Wise since 2007. Today, it has launched a report which demonstrates the initiative is needed more than ever as it urges policymakers, financial regulators and industry to expand risk sharing systems at scale to tackle the climate emergency. 

The prospects for wide scale risk sharing are a critical part of the climate change puzzle given the growing global protection gap, particularly in climate vulnerable and poorer nations. There are precedents for successful public-private risk sharing arrangements. The UK’s Flood Re scheme, for example, was a genuine world first and since its launch, it has helped 300,000 households at high risk of flooding secure affordable insurance. That said, the experience of establishing the scheme is also a reminder that we should not under-estimate the significant challenges these negotiations can take. 62 different regulatory approvals were needed in order for it to become operational. 


As MP Alok Sharma, president of COP26,  has said, we need to show “ever-increasing ambition” in this “decisive decade”. The ABI’s strategies and pledges will need to be turned into concrete actions and hard data. But there are three reasons to have great optimism.

First, CEOs are hands-on in driving the work. One industry CEO has spoken of spending more than 25% of their time working on climate change and sustainability. Second, there is a desire to take action and be accountable now – not setting targets for CEO successors to meet. Third, there is an ambitious vision for the sector beyond the traditional insurance role – protection against financial loss – and every lever is being used to drive change.

Our sector is incredibly influential. Nobody knows if we will pull it off - but we definitely can’t if too many people sit on the sidelines. It is an important, terrifying, nail-biting but also very exciting time to be part of industry, and our society. The ABI and its members will do everything they can to rise to the challenge.

This speech was delviered in person on 3 November and was published in Insurance Post as an exclusive blog


Last updated 03/05/2023