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Sustainability at the centre of the CEO’s agenda of Insurance companies*
When insurance CEOs ask world leaders where they need help, the answer is consistently health, climate change and financial inclusion, three topics on which the insurance industry has deep knowledge and capability.
Looking specifically at climate change, the CEO survey shows that, although it’s moving up the boardroom agenda within the insurance industry, CEOs still primarily see it as a reputational issue rather than as a strategic opportunity or a source of closer government engagement. There’s an opportunity for visionary insurance leaders to be distinctive.
What are the key climate risks?
Climate change is one of the most pressing issues facing the global economy and introduces specific risks for insurers, depending on the future emissions scenario which plays out. The Task Force on Climate-related Financial Disclosure (TCFD) framework links physical, liability and transition risks to governance, strategy, risk management, metrics and targets for climate-related risks and opportunities across various industries (FSB-TCFD, 2017).
According to AODP (Asset Owners Disclosure Project) these general climate risks affect insurers across the balance sheet:
Investment (asset side)
Risks arising from the impact of physical climate events and trends on assets, firms and sectors, affecting profitability and cost of business, leading to impacts on financial assets and portfolios.
Underwriting (liability side)
Pricing risks arising from changing risk profiles to insured assets and property (non-life), changing mortality profiles and demographic trends (life and health).
Claims risk arising from the confluence of unexpected extreme weather events. Strategic/market risks arising from changing market dynamics (e.g. uninsurability of property).
Investment (asset side)
Risks arising from market, policy, technological and social changes, affecting profitability and cost of business of firms and sectors leading to impacts on financial assets and portfolios.
Underwriting (liability side)
Strategic/market risks arising from a contraction in market demand in certain sectors (such as fossil fuels or marine transport).
Strategic/market risks arising from market trends, technological innovation and policy changes related to climate change (e.g. carbon pricing, energy efficiency regulations) affecting products and services demanded by consumers.
Investment (asset side)
Litigation risks relating to the consideration of climate change in investment decision-making or inadequate disclosure of climate risks.
Underwriting (liability side)
Liability risks arising from insurers becoming liable on the basis of insurance provided (e.g. tort or negligence claims) or from Directors & Officers policies.
What are the sustainability focus areas for leading insurers?
Improve underwriting/risk analysis
Integrating ESG can reduce insurance loss and improve business outcomes for (re)insurers and their clients
Drive growth
New product development and product differentiation focused on sustainability can reach new markets
Enhance reputation
Sustainability strategies can attract new customers and employees, driving revenue growth and employee retention
Reduce costs
Operating more efficiently often comes with sustainability benefits
Manage risks
ESG trends impact business operations; sustainability strategies can prepare insurers to be more resilient in the face of distribution
How PwC can support your ESG transformation
We help organisations to look at the bigger picture, by striking a balance between staying competitive, driving innovation and preserving our environment.
Vision setting
Establish the top priorities related to the climate risk approach and strategy and conduct analysis to identify the topics most important to stakeholders
Current state assessment
Assess the current state of ESG disclosures and consideration of ESG across the organisation, compared to frameworks, rating agencies and best practices
Operating model development
Develop a recommended ESG operating model based on leading practice
Develop execution roadmap
Operating model
Integrate ESG strategy into the end-to-end operating model
Risk management framework integration
Assess current risk management processes and advice related to the integration of ESG factors into the risk management framework, including recommended tracking metrics, threshold design and stress testing
Transaction support
Carry out buy-side/sell-side due diligence focused on ESG
ESG disclosure optimisation
Review the landscape of disclosure priorities to assess and recommend the most effective disclosure future state
Process, controls and technology assessments and implementation
Report production
Perform design services for the report including copy editing and graphic design capabilities
Internal audit support for ESG data
Assurance readiness
Perform detailed walkthroughs to assess the data collection process and applicable controls to provide a report on any gaps related to assurance and opportunities for enhancement
Non-financial assurance
Review selected data using market-standard procedures for an assurance engagement resulting in a PwC opinion
Climate change education and support
Facilitate climate change training sessions with management and underwriting/actuarial staff and review companies’ incorporation of climate change into business processes, including pricing and reserving
Client education and awareness building
Get in touch with us
https://pages.pwc.ch/core-contact-page?form_id=7014L0000000mLIQAY&embed=true&lang=en
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