Climate tipping points should be front of mind for risk professionals

Published on Thu, 10/12/2020 - 11:51

Airmic hosted its first Climate Change Forum on 9 December, featuring a diverse range of speakers across risk, insurance and experts on weather and the environment.

The Forum, supported by Swiss Re Corporate Solutions, was opened by Nigel Bamber, Head of Customer in the UK, and John Ludlow, CEO of Airmic. Mr Bamber highlighted Swiss Re’s longstanding commitment to keeping climate change on the agenda, including working with clients on risk financing for projects directly tackling the issue.

The insurer has written cover for more than 3,500 wind and solar farms, for example. “But providing Insurance in this sector isn’t always easy and one of our challenges we face is how or if we can insure the prototypical nature of these projects as the technology involved maybe untried and untested,” Mr Bamber said. “This is a challenge that isn’t going away, and arguably will become even more difficult and one that we need to overcome.”

On an optimistic note, however, he added: “What I do think is positive news, and this is a change in recent years, is just how much of an issue Climate Change is for businesses nowadays. They are really looking to change how they do things, in order to become their operations and their products more sustainable.”

Mr Ludlow said the climate crises is both a physical issue that needed to be factored into new investments choices and building resilience in existing business models, and a corporate brand issue because consumers have become more aware and expect corporate brands to behave responsibly.

“Failure to do this will have a significant impact on the support, trust and admiration they (consumers) might have for you,” he warned. “This will translate into levels of sales, attractiveness as an employer and as an investment of choice. It is time for risk managers to reach out to other functions and ensure that businesses are fit for the future.  To achieve that we need to become aware of the emerging issues and work collaboratively to find solutions and opportunities.”

Tim Lenton, Professor of Climate Change and Earth System Science at Exeter University, addressed climate tipping points both with regards to rising temperatures and sea levels, but also social interventions such as uptake of electric vehicles, or the falling cost of lithium batteries, that will accelerate change.

On the former, Professor Lenton said there was evidence to suggest a tipping point had already been reached with ice loss in the West Antarctic Ice Sheet now accelerating, but said others could still be avoided. Regarding the latter, he highlighted the positive effects of social contagion with the mass adoption of solar panels in neighbourhoods an example.

In conclusion Professor Lenton emphasised that as the planet is heading for 3°C global warming it will move more than three billion people outside of the “human climate niche” that has “served us well for thousands of years”. Climate tipping points, if not avoided, will lead to high impact, high probability events, but global warming could be limited to well below 2°C through “transformative social-technological change,” policy interventions and rapid decarbonisation.

Martin Bertogg, Head of Catastrophe Perils & Cyber at Swiss Re, addressed the insurability of the risks associated with climate change in his presentation. Delegates responded to a poll asking whether it will be possible to buy natural catastrophe insurance cover by 2050, assuming carbon emissions are not significantly curbed. Fifty-eight per cent of the audience believed several areas would become uninsurable while 30% said the insurance industry would pull back from unsustainable risk levels.

“The price tag for insurability will probably go up,” said Mr Bertogg. “But climate risk remains insurable, while definite outcomes of climate change are not. Guaranteed sea rise and temperature increases are not insurable, but the risks concerned with climate change are insurable.”

The Airmic Climate Change Forum also featured panel discussions on decarbonisation, reporting requirements, how climate risks can be quantified and the importance of recognising environmental, social and governance (ESG) trends and obligations.

Further information on the Climate Change Forum can be found here.