Posted on September, 13 2023

The report “Underwriting our planet: how insurers can help address the crises in climate and biodiversity” finds that many economic activities underwritten by insurance companies are fuelling climate change and nature loss rather than addressing this twin crisis. Although some insurance companies have started to integrate environmental considerations into their business strategies, actions undertaken fall short of what is needed. For example, while there is an overall increasing awareness of the considerable risks caused by extreme weather events, the insurance sector is barely addressing how the underwriting business is contributing to those risks.

In 2022, global economic losses from natural disasters were about $275 billion but only $125 billion of the total loss was insured. And those figures do not include the non-monetary harm to people and nature.

In response to higher expected losses, insurance companies are increasing insurance premiums, limiting coverage, or completely withdrawing from markets. For instance, in Florida, US, flood insurance costs this year are expected to double, or even triple for thousands of homeowners in areas prone to flooding. Meanwhile, in California, after several seasons marked by devastating wildfires, at least three big insurance companies ceased to underwrite new policies for home insurance. 

With $6.86 trillion in gross written premiums (2021), insurance companies are an economic heavyweight with enormous potential to reduce the negative impact on climate change and nature loss through their underwriting business, and to speed up the transition to a net zero, nature positive economy.

Thomas Vellacott CEO of WWF Switzerland says:
"This summer, we witnessed devastating heatwaves and wildfires across Southern Europe, Northern Africa, Asia and Northern America. Insurance companies are particularly affected by these events as cost increase is leading to greater payouts and entire regions become uninsurable. It´s high time insurers address these risks and align their underwriting business with global climate and biodiversity goals."

Marcel Meyer, Head Sustainability Services, Deloitte Switzerland says:
“The insurance industry has the power to play a leading role in our effort to work towards a sustainable future. With their reach to all industries, insurance companies have the ability to incentivize sustainable practices and promote responsible behaviors of its customers. By incorporating environmental considerations into their business practices, insurers can help protect biodiversity, mitigate climate change, and build a more resilient and sustainable future.”

Insurance companies have several possibilities to reduce their negative environmental impact and to become catalysts for a green, fast and fair transition. Taking swift action on climate and biodiversity is in the best interest of insurance companies in the face of the threat of uninsurability. WWF recommends insurance companies implement the following measures in their underwriting business: 

• Strategically align underwriting policies with global climate and biodiversity goals and implement corresponding transparent and measurable transition plans. 
• Engage with clients and insurance brokers to align with those goals, and advocate for a fast green and fair transition. 
• Promote green and resilient choices by clients, the adoption of new green technologies and practices, and the implementation of circular economy principles through the design of insurance products and claims management processes. For example, insurance companies should offer new products for renewable energy or recycling projects, nature based solutions and incentives for homeowners to (re)build to the highest sustainability standards and favor “repair over replace” during claims management. 
• Review policies to eliminate “harmful” incentives that impact the environment and people (“moral hazard”) and instead engage clients and other stakeholders to adhere to the highest environmental standards. 
• Exclude the most environmentally harmful economic activities and sectors, such as expanding fossil fuel industries, deep sea mining, deforestation, or illegal, unregulated and unreported (IUU) fishing from insurance policies.
• Communicate clear phase-out of any fossil fuel-related business in line with the International Energy Agency’s Net Zero Emissions by 2050 Scenario.

Policy makers, insurance regulators and supervisors can help advance insurance companies to reach global climate and  biodiversity goals by aligning insurance regulation, policies and supervision with the above recommendations as part of their transition planning towards a net zero, nature positive economy.