Insurance, Climate Change and the Law

The insurance industry is at the forefront of climate change challenges, providing insurance coverage for climate change-related losses and investing in assets that may be vulnerable to climate risks. Insurance regulators require insurers to identify, manage, and report on climate change risks, but managing and reporting on the effect of climate risk on an insurers balance sheet is an inward-looking perspective that does not stem climate change. To take positive climate action, the debate should move on to considering the positive outward impact the insurance industry can make and how to create a legal environment to facilitate this. The book proposes a new vision of the role of the insurance industry as climate action enablers and makes proposals for insurance products and risk transfer and loss resilience structures that can support policyholders in their transition to a Net Zero economy.

Format: Hardback
Length: 358 pages
Publication date: 03 April 2024
Publisher: Taylor & Francis Ltd

The insurance industry is at the forefront of addressing the challenges posed by climate change, offering insurance coverage for risks associated with this global phenomenon. As risk carriers, insurers bear the responsibility of paying claims related to climate change-induced losses, such as property damage caused by windstorms, flooding, and wildfires, which have been increasing in frequency and severity. Recognizing their role as significant institutional investors, insurance companies also allocate their assets in ways that may be increasingly vulnerable to climate risks. Consequently, insurance regulators worldwide have begun mandating insurance companies to identify, manage, and report on climate change risks that could threaten their financial stability.

However, a purely inward-looking perspective on managing and reporting climate risk within the insurance industry fails to address the root causes of climate change. It is crucial to complement this approach with an outward-looking perspective that considers the industry's impact on the environment and its ability to influence the actions of policyholders, investee enterprises, and other business partners in addressing climate change challenges.

For the insurance industry, two key components contribute to a positive outward impact: impact underwriting and impact investment. This book aims to provide a comprehensive legal and regulatory landscape for impact underwriting and impact investment. While research and regulatory interventions have primarily focused on inward impact, this book argues that the debate should now shift towards exploring the positive outward impact that the insurance industry can make and how we can create a legal environment to facilitate it.

Impact underwriting involves the assessment and pricing of insurance policies that consider the environmental and social impacts of the insured activities. By incorporating these factors into the underwriting process, insurers can incentivize businesses and individuals to adopt more sustainable and responsible practices, reducing their environmental footprint and contributing to social well-being. Impact investment, on the other hand, involves directing
directly investing in assets or projects that have positive environmental or social outcomes. This can include renewable energy projects, sustainable agriculture initiatives, or social impact bonds, which aim to address social and environmental challenges while generating financial returns.

By adopting impact underwriting and impact investment practices, the insurance industry can play a pivotal role in driving positive climate action. It can help to promote sustainable business practices, support the development of renewable energy infrastructure, and address social and environmental issues that are closely linked to climate change. Moreover, by aligning their investments with the Paris Agreement goals and the national and international Net Zero targets, the insurance industry can contribute to the global effort to combat climate change and create a more sustainable and resilient future.

In conclusion, the insurance industry has a significant opportunity to leverage its expertise and resources to drive positive climate action. By adopting impact underwriting and impact investment practices, the industry can contribute to the global effort to combat climate change and create a more sustainable and resilient future. It is essential to recognize the importance of an outward-looking perspective that considers the industry's impact on the environment and its capacity to influence the actions of other stakeholders in addressing climate change challenges. Through collaboration and innovation, the insurance industry can play a vital role in shaping a more sustainable and inclusive future for all.

Weight: 876g
Dimension: 179 x 253 x 29 (mm)
ISBN-13: 9781032289595