Insurers need a multipronged approach to carbon transition: Zurich’s Hui
September 26 2024 by Heather Ng
Beyond underwriting and investment initiatives, insurers can serve as advocates for climate action, leveraging their expertise to influence public discourse on sustainability, says Zurich HK chief executive Eric Hui.
Insurers are playing a pivotal role in fostering the transition to a low-carbon economy through various initiatives, collaborations, and advocacy efforts. As key players in the financial ecosystem, Insurers contribute significantly to sustainability by directing capital towards green projects and mitigating climate-related risks.
Insurers are increasingly investing in green bonds and financing sustainable ventures, thus channeling funds into projects that support environmental goals. For example, major firms collaborate with financial institutions to ensure their investments align with sustainability criteria. By supporting green initiatives, insurers not only enhance their portfolios but also contribute to the overall shift towards a sustainable economy.
“Insurers act as risk managers, providing coverage for climate-related risks, including natural disasters. This support enables the development of new technologies aimed at reducing carbon footprints. Zurich are leading the way by offering specialised coverage for emerging risks such as solar panel installations and electric vehicle (EV) chargers,” according to Eric Hui, Chief Executive Officer of Zurich Insurance (Hong Kong) and chairman of Zurich Insurance (China).
Advocacy and thought leadership
Insurers also serve as advocates for climate action, leveraging their expertise to influence public discourse on sustainability. Through participation in ESG forums and industry panels, they share best practices and promote collective action towards a low-carbon future. Zurich, for instance, has been active in various discussions around climate change, emphasizing the insurance sector’s role in shaping sustainable practices.
“Insurers act as risk managers, providing coverage for climate-related risks, including natural disasters. This support enables the development of new technologies aimed at reducing carbon footprints.” Eric Hui, Zurich
Moreover, insurers can foster a culture of sustainability within their organizations. By implementing training programs focused on sustainability and climate risk management, they equip their workforce with the knowledge and skills needed to drive change.
“Initiatives such as the Hong Kong Climate Charter are crucial in establishing a framework for sustainability within the insurance sector,” said Hui.
“This charter outlines climate principles tailored to local needs, promoting transparency and accountability through improved climate disclosure practices. By encouraging collaboration and the exchange of ideas, such initiatives lay the groundwork for a unified approach to achieving a low-carbon economy,” he added.
ESG in underwriting
Insurers are increasingly integrating sustainability and ESG factors into their underwriting and investment decisions.
“Underwriters reassess risk appetites by incorporating ESG scores into risk assessments and pricing models. This approach allows for better evaluations of potential clients while encouraging improvements in their ESG performance,” according to Hui.
In investments, insurers employ negative and norms-based screening to exclude non-compliant sectors, ensuring alignment with international standards. This comprehensive analysis of risks and opportunities enables insurers to engage in impact investing, targeting projects that deliver social and environmental benefits. Zurich, for example, has reduced the carbon footprint of its Hong Kong portfolio by 65% since 2019, demonstrating a commitment to sustainable investment practices.
Emerging trends
The APAC reinsurance industry is witnessing significant changes driven by increasing natural catastrophes and emerging risks such as cyber threats and pandemics.
“Insurers are responding to these challenges by developing specialised coverage options for green assets and renewable energy projects, addressing operational risks and regulatory changes,” he said.
Parametric insurance products in particular are gaining traction, offering quicker payouts based on predefined weather events, thus enabling faster recovery and encouraging investment in sustainable practices, according to Hui.
“Furthermore, sustainability-linked insurance products are emerging, incorporating criteria that promote eco-friendly behaviors among policyholders.”
Challenges
Despite these advancements, insurers face several challenges in aligning their practices with sustainability goals. A major hurdle is the lack of quality ESG data, particularly regarding scope 3 emissions from clients.
Additionally, the evolving landscape of climate risks necessitates constant reassessment of risk models to maintain insurability.
“Insurers must navigate shifting sustainability regulations and develop robust performance metrics for reporting which can be resource-intensive,” said Hui.
“Balancing market demands with sustainability objectives poses strategic challenges, as does the risk of being accused of greenwashing. Ultimately, insurers must navigate these complexities to achieve a sustainable and financially viable business model,” he added.
-
BHSI | Managing non-Asian exposure in long-tail lines
While US-exposed business can look attractive to Asian carriers, managing the volatility around the long-term results and the ability to model those losses are crucial, say BHSI’s Marc Breuil and Marcus Portbury.
-
Sedgwick | To Handle CAT Claims Well, Multi-Step Preparation is Key
When it comes to risk, it’s not a matter of “if” it’s a matter of “when” an event will occur.
-
HSBC Asset Management | Is it time to relook at Asian currency bonds?
With diversification and performance high on investors’ agendas, it seems a good time for global portfolios to revive allocations in Asian local currency bonds – including Hong Kong dollar (HKD) bonds.
-
PineBridge Investments | Why Asian insurers are exploring private credit and CLOs
The recent rollout of risk-based capital regimes across Asia calls for a closer alignment between insurers’ assets and liabilities. We explore potential ways to maintain a healthy investment yield and robust returns on regulatory capital.
