Reliance on insurers insufficient to address ‘juggernaut’ of climate risk

By Rebecca Delaney

June 24 - (The Insurer) - The UK government’s special representative for climate Rachel Kyte has warned that the insurance industry’s role as a backstop is not sustainable as climate impacts intensify globally.

“The first thing I want to say is not to get distracted,” said Kyte in a keynote address at the De-Risking Summit at Mansion House on Monday.

“The world is getting more complicated by the minute, but the fundamental truths that climate science is saying to us haven't changed. The action we need to take now to respond to that science hasn't changed. Risk will move and perceptions of risk will shift, but we as a community know this because we look round corners.”

Kyte continued: “The world has come at us faster. The scientists themselves believe we are now in an era of tipping points and feedback loops. It is for us to focus and act and lobby and push, whether it's a politician, a CEO, an investor. This is the time to double down.”

On Monday, the UK government published its modern industrial strategy, a 10-year plan to ramp up business investment across eight growth-driving sectors, including clean energy industries.

“We have to work simultaneously on the fact that we have a grid system that just isn't good enough, that can't absorb renewable energy that's coming from the revolution, (and) that we don't have interconnectors in place that we need in order to make that energy affordable and reliable,” said Kyte.

“We have to mobilise an extraordinary amount of investment resources, and we have to find insurance solutions for a modern energy grid that can absorb all of the different sources of power and distribute them in a way that gets to that last mile.”

Kyte highlighted resilience and adaptation measures as an area where the insurance industry is already incentivising more sustainable practices.

“Resilience and adaptation is where I think the insurance industry leads. Over the last 20 to 30 years, we've learned a lot about how to make households and individuals more resilient, and the insurance industry has been a very big part of that,” she said.

“This is a juggernaut coming quick and slow at the most vulnerable people. Can we see a conversation on resilience which bears some reality to the actual world in which we live, not just into the words of the page of a climate convention?”

Kyte continued: “This is not something that we're looking at in the rear-view mirror. This is not a black swan event. This is a grey rhino. Normally, the insurance industry is who we rely upon in order to be able to avoid being trampled down by that rhino.”

She called on the industry to engage with government and other stakeholders to reevaluate the industry's inherent role as a backstop.

“We can't rely on the insurance industry to get us out of a problem when the climate impacts are starting to soar in every jurisdiction at the same time. This is not a position of resilience. If it all comes crashing down at the same time, where do we stand?” she said.

“It is time to have a conversation as an industry as a whole, and governments as a whole, about the fact that perhaps as currently established and as currently regulated, the insurance industry may need to (with the help of government) evolve to meet the moment that if we take the science as it is, we will expect to see extraordinary amounts of GDP growth lost every year at the same time across the world economy.”

Kyte concluded: “While governments and the financial sector are distracted by those storm clouds on the horizon, this is precisely the moment when we have to focus, start asking the difficult questions and bring that future conversation forward.”