FIT unveils insurance-specific transition plan guidelines

By Rebecca Delaney

July 2 - (The Insurer) - The UN-convened Forum for Insurance Transition to Net Zero (FIT) has launched transition plan guidance for (re)insurance underwriting portfolios to encourage the industry to move beyond high-level commitments into actionable transition-related products and policies.

The guide was launched at the inaugural FIT Transition Insurance Summit hosted by the European Insurance and Occupational Pensions Authority in Frankfurt.

It is designed to provide a framework to help insurers, reinsurers and brokers to develop and disclose credible transition plans for underwriting portfolios, which was identified as a "gap" in existing guidance.

The guide noted that while many insurers have set long-term net-zero goals, few have outlined concrete short- and medium-term priorities and pathways, resulting in significant variance in the depth and specificity of transition plans across the industry.

"In most cases, these commitments primarily focus on reducing emissions from an entity’s own operations and investments, while some commitments also extend to underwriting activities — typically within P&C lines. It is also worth noting that no leading broker has published a transition plan to date," said the report.

"Even among insurers, reinsurers and brokers that disclose net-zero commitments, many lack detailed roadmaps outlining how they will achieve their targets. A significant challenge remains in translating high-level commitments into detailed, actionable plans."

Recommendations begin with disclosing the strategic ambition of an entity's transition plan, including its role as a (re)insurer in reducing greenhouse gas emissions in the real economy, and objectives and priorities for reducing insurance-associated emissions through its underwriting activities and value chain.

(Re)insurers should also clearly outline whether the objectives and priorities apply only to a proportion of its underwriting portfolios and/or selected lines of business or products and services, and the reasons for any exclusions.

Product offering strategies should centre around how an entity is enhancing its offering with (re)insurance products and solutions for low or near-zero greenhouse gas emissions technologies and infrastructure, as well as insurance products that encourage climate risk prevention and reduction.

(Re)insurers are recommended to disclose how they unilaterally define policies, conditions and criteria to manage their underwriting portfolio relating to high-emitting and emissions-intensive assets, activities and sectors.

Similarly, the portfolio steering strategy should include definitions for restricting, excluding or phasing out from the above, and how this will change their portfolio mix.

All recommendations also apply to brokers' underwriting placement business and placement strategies.

The guide also includes recommendations for (re)insurers' and brokers' implementation strategy across business operations, products and services, and policies and conditions.

For the latter, this may include location-based exclusion policies, threshold-based exclusions for commercial lines, and the phase-out of commercial lines relevant to emissions-intensive business or assets that present irreversible pollution risk.

Firms are also recommended to disclose how they are engaging and collaborating with industry counterparts, as well as with government and public sector organisations.

Metrics and targets for P&C insurance may include the number and proportion of corporate clients that have set credible science-based emissions reduction targets and credible transition plans, and the number of business lines with specific net-zero objectives and/or climate adaptation objectives.

This could also include the number and proportion of policies providing coverage for properties or businesses that meet defined sustainability standards, as well as policies not renewed or cancelled due to criteria to phase out underwriting support for emissions-intensive business.

The guide marks the second step of FIT's transition plan project following the forum's inaugural report launched on Finance Day of COP29 in November last year. The FIT was formed in April 2024 following the formal dissolution of the Net-Zero Insurance Alliance due to U.S. antitrust concerns.

The third deliverable of the project will see the launch of "total balance sheet" transition plan guidance that links the underwriting and investment portfolios of (re)insurance companies. This is scheduled to be published at COP30 in Belém, Brazil this November.