As COP26 talks begin to draw towards conclusion, it appears increasingly clear that resolutions around the key talking point – emissions reduction – will be limited and at best will likely guide towards establishing stronger targets by the end of next year.

There are no firm targets in the initial draft COP26 text towards the phasing out of coal and subsidies for fossil fuels, although the text does call on governments to accelerate these actions.

One positive move is the recognition of loss and damage in the draft text and the emphasis on the need for finance to help support adaptation among vulnerable countries.

Mami Mizutori, assistant secretary general and special representative of the secretary general in the UN Office for Disaster Risk Reduction, believes COP26 has “moved the needle” on adaptation and resilience.

Mizutori said risk and resilience have now become an “integral part of climate discussions”, with a stronger focus on adaptation than in previous COP meetings.

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He also highlighted how the private sector has scaled up its efforts on climate finance, alongside commitments from several governments although the $100bn a year pledge has not yet been met.

The recognition that strategies and adaptation plans must be risk-informed presents an opportunity for insurers to play an important role in the process.

The risk expertise across the industry could prove invaluable as the world adapts to the impacts of climate change.

The work of the Insurance Development Forum (IDF) to develop tools to enhance understanding of risk in vulnerable countries can play a vital role in helping facilitate the use of risk transfer as a resilience mechanism.

As risk and resilience rises up the agenda, so also does the industry’s profile as a potential force for good.

In today’s Daily COP26 bulletin, we also hear from Conduit Re executive chairman Neil Eckert who throws his support behind the development of a universal approach to carbon scoring after acknowledging the challenges in assessing the carbon intensity of an underwriting portfolio.

Scott Vincent News editor, The Insurer

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V20 launches Sustainable Insurance Facility with BMZ funding for first initiativeThe V20 has formally launched its new Sustainable Insurance Facility (SIF) at COP26, with a project targeting the development of climate-smart insurance in the Philippines the first to be launched through the initiative.

The Asia-Pacific Climate Finance Fund (ACliFF) will administer insurance for micro, small and medium sized enterprises, with funding from Germany’s Federal Ministry of Economic Cooperation and Development (BMZ).

BMZ director general Jürgen Zattler said the project will establish a viable and sustainable business case and model for climate and disaster insurance.

“Small enterprises frequently lack access to effective risk management tools, such as climate risk insurance, to protect against climate and disaster shocks,” he said.

“Promoting insurance access and adoption among small enterprises provides financial protection that helps to safeguard development gains and avoid reliance on adverse and less effective coping mechanisms.”

The work will also explore solutions that address the gender-specific impacts of disasters affecting micro, small and medium sized enterprises in the Philippines.

ACliFF, which was established in 2017, is also set to explore future collaboration with the SIF across other countries in the Asia Pacific region.

The programme outcomes will contribute toward the InsuResilience Global Partnership’s Vision 2025 target to cover 500 million poor and vulnerable individuals against climate and disaster shocks by 2025.

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GRMA can “help build trust and confidence” in risk transferInitiatives such as the Global Risk Modelling Alliance can help build trust and confidence in risk transfer tools in countries where insurance is not traditionally used as a disaster risk management tool, according to Insurance Development Forum (IDF) risk modelling steering group programme manager Nick Moody.

Moody told a COP26 side event that projects such as GRMA would help democratise the risk management process and enable countries on the front line of climate change impacts to make their own decisions.

“For countries on the front line when it comes to climate change, it doesn’t make sense for decisions about their future to be made based on someone else’s viewpoint.

“If the analysis is based on local research that in turn brings greater trust and confidence,” he said.

At a practical level, Moody said the GRMA was about helping to reduce uncertainty.“The best way to do this is to integrate global and local knowledge that can produce metrics that can unlock finance, whether for investment or risk transfer.”

The GRMA was officially launched at COP26 through the signing of an agreement between the IDF and the V20 group of vulnerable countries to build risk analytics capability where most needed.

The GRMA programme comprises three elements. Firstly, open-source technology and standards, provided by the industry and optimised for public-sector use.

The Oasis open risk modelling platform is being further developed for public sector and humanitarian use cases.

Secondly, it will include a public good fund to help countries fill model and data gaps, to be resourced by donors.

The third element will see a technical assistance team of public and private sector practitioners work with countries on applied projects, jointly resourced by donors and the insurance industry.

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Nature-based solutions “critical” to coastal resilienceProtecting and restoring coastal ecosystems can play a critical role in climate adaptation planning, according to experts from United Nations University (UNU) and the World Food Programme.

Speaking at a COP26 side event, UNU senior scientist Jack O’Connor said nature-based solutions can help reduce disaster risk, biodiversity loss and food insecurity in an integrated way.

An example is Bangladesh, where O’Connor said numerous projects were underway to protect and restore coastal ecosystems, primarily mangrove forests.

As well as strengthening coastal protection and cyclones and rising sea levels, these forests also store atmospheric carbon and contribute to local livelihoods through providing a home to fish, crabs and clams.

UNU said nature-based solutions can also be integrated with safety nets such as climate risk insurance, combining landscape restoration with access to insurance and other financial services.

Gernot Laganda, chief of climate and disaster risk reduction programmes at WFP, said: “Nature itself is often the best way to protect both people and the planet.

“Rehabilitating ecosystems helps to reduce people’s vulnerability to climate shocks and stresses while also protecting biodiversity and promoting social cohesion.”

Last week saw Axa XL launch its Coastal Risk Index, a tool it is hoped will help build the case for nature-based solutions as a tool for societal resilience.

Chip Cunliffe, biodiversity director at Axa XL, said mangrove and coral reef ecosystems are key to supporting risk mitigation and adaptation efforts against the impacts of climate change.

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Conduit Re executive chairman Neil Eckert has thrown his support behind the development of a universal approach to carbon scoring after acknowledging the challenges in assessing the carbon intensity of an underwriting portfolio.

Speaking exclusively to The Insurer TV, Eckert said increased pressure will come from both regulators and asset managers over the reporting of ‘Scope 3’ emissions – those generated through underwriting or investment activities.

“Methodology on that is really a work in progress at the moment and it’s been described to me as more of an art than a science at the current time,” Eckert said.

“Trying to measure the carbon intensity of an underwriting portfolio is incredibly difficult. If you have an architect who is designing concrete buildings, how do you score that?”

Eckert said he expected a universal approach to emerge over the next two to three years.“I’m much more interested in getting that right than I am about generating additional workstreams within our own industry,” he said.

He said underwriters had an important role to play in this process, and could help ensure the process was driven by management and the perception of risk rather than through a rules-based culture.

“For me it is about evaluating risk. Given what we know about what’s going on in the world today, you should be asking that client all the right questions,” he said.

If as an industry the questions asked as part of the underwriting process are right, Eckert said the need for a regulator to appear and start to try and impose rules and regulations would be reduced.

“Rules and regulations are needed if someone is not doing the right thing. In this case, I think the opportunity now is to make sure that the way we underwrite reflects the transition.”

Conduit Re’s Eckert calls for universal approach to carbon scoring

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“If you are in the energy market or you are insuring assets, you will as an underwriter be needing to ask all the right questions.”

He also added his voice to those cautioning against alienating clients through excluding cover.

“I heard a very interesting comment from one of the major oil companies recently which was don’t make us sell all our fossil fuel assets because they will end up in the hands of people that may care less than us.

“Some of those big oil companies now are very well-regulated businesses and they’re deeply engaged in the transition. If they start disposing of all their fossil fuel activities, they will end up in the hands of people who will have much less regard for environmental impact.”

New opportunitiesDuring the interview Eckert also reiterated his view that the transition towards net zero presented a huge opportunity for the sector. “You will see a massive transfer of investment and assets from the old economy into a new one. During that transition, you will see change occur on a scale probably not seen since the Industrial Revolution.

“That will create vast amounts of new construction and huge amounts of decommissioning of old industrial sites which in itself, with the environmental liabilities involved, is a huge business. There are also opportunities presented by new technologies,” he said.

“Anyone thinking strategically about where they want to be in 10 years time wouldn’t be going into the market to hire a new coal mining team. You’d be going into the market to hire someone who specialised in renewable energies and renewables are just the tip of the iceberg.”

Eckert said there was also now a “real focus” in the industry around addressing the protection gap and building resilience in vulnerable countries.

“Parametric products are much more prevalent and that’s a way of measuring and insuring risks that on the face of it are very hard to insure,” he said.

“Insurers and the world’s biggest broking houses are looking at trying to get coverages put in place for regions of the world that are in the firing line on climate change.

“Ten years ago, this wasn’t happening and you wouldn’t have heard these discussions occurring. There are lots of initiatives, with people looking at public-private partnerships and the way risk is managed – that presents an opportunity for the industry.”

“You will see change occur on a scale probably not seen since the Industrial Revolution”

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Howden CEO David Howden has called on the public, private and charity sectors to create a market that develops alternative methods to help close the widening ~$20bn disaster relief funding gap.

The call to action formed part of a keynote speech in which the executive addressed delegates at the World Climate Summit, a side event at the COP26 talks in Glasgow.

Howden said that, despite governments, foundations and individuals continuing to pour public money into disaster relief, the funding shortfall “has never been wider:, rising from $1bn 20 years ago to $20bn today.

The executive said that public funds are not enough to tackle the rising frequency and severity of disasters globally, adding that the deployment of private capital is “essential”.

He noted growing investor appetite for asset classes that support societal resilience. The broker estimated that if just 3 percent of global pension funds’ assets under management were redirected into insurance-based ESG investments, this would equate to $1.5trn of capital for social good.

“It is an acorn which, if we bring together the investment, humanitarian and philanthropic communities, can grow into a forest of oak trees,” he told the COP26 summit.

Howden appeals to COP26 delegates for collaboration on disaster relief funding

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Howden added: “The concept has received huge support from our own employees, who want to work in an industry that is not just for profit but for purpose as well.

They are putting significant sums of their own money into our foundation to back it, enabling the foundation to commit future funding that will result in up to £100mn of disaster relief financing for projects globally.”

He explained how there is already interest from other corporate foundations, especially in the financial services industry, who recognise the significant potential to show their employees how the ingenuity of the industry they work in can be used for social good.

He called upon the global investment, humanitarian and philanthropic communitiesat the Summit to join together to establish a market.

“We can’t keep relying on government and charities to find more money – there is far more private capital available than public – and there is huge appetite from this capital to invest in ESG, but it needs a market. So I’m here today to ask for your help in creating that market,” he said.

“To humanitarian organisations wanting to make the most of your funds for resilience and preparedness – bring us your disaster relief projects.

To foundations looking to make the greatest impact on saving lives and livelihoods with every donation – fund the premium and stretch the impact of every dollar. And to investors looking to channel your capital into asset classes that help to deliver societal good – come and talk to us.”

Earlier this year, Howden collaborated with the Danish Red Cross and others on the world’s first volcano catastrophe bond. Under this new model, humanitarian aid funds are raised in advance and stretch up to 20 times further than traditional funding methods, whilst offering uncorrelated returns for investors.

The cat bond covers 10 volcanoes across three continents and raised $3mn from investors to provide aid in the aftermath of an eruption. Initial investors include Plenum Investments, Schroder Investment Management and Solidum Partners.

The broker also launched a climate risk and resilience division designed to address the risks associated with a changing climate and aid the transition towards net-zero carbon emissions.

“It is an acorn which, if we bring together the investment, humanitarian and philanthropic

communities, can grow into a forest of oak trees”