Commercial insurers to start setting net zero underwriting targets by July

Many of the world’s largest commercial insurers and reinsurers will begin setting targets in July aimed at reducing insurance-related greenhouse gas emissions, a leading expert has told Commercial Risk.

The United Nations-convened Net-Zero Insurance Alliance (NZIA) launched its Target-Setting Protocol (TSP) at the World Economic Forum’s annual meeting in Davos, Switzerland at the beginning of this year. The Protocol followed November 2022’s launch of the Global Greenhouse Gas Accounting and Reporting Standard for Insurance-Associated Emissions (the accounting standard), developed by the Partnership for Carbon Accounting Financials (PCAF) and the insurance industry.

The accounting standard and the launch of the TSP are a “major step” in the insurance industry’s efforts to measure greenhouse gas emissions and set targets on the journey to net zero by 2050, according to Martin Weymann, head of group sustainability at Swiss Re, a co-founder of NZIA and chair of the metrics working group tasked with developing the TSP. “For the first time, the insurance industry has a protocol to set targets in the transition to a low carbon economy,” he told Commercial Risk.

The PCAF carbon accounting standard and NZIA TSP provide insurers with a framework to measure and report greenhouse gas emissions associated with a number of insurance contracts, and set targets to reduce underwriting emissions in line with the Paris Agreement. The TSP contains five decarbonisation targets but gives insurers considerable flexibility in how they go about reducing greenhouse gas emissions in their underwriting operations.

The TSP sets out a methodology for establishing the general scope for setting targets. It also proposes five target types, split into three differentiated categories covering emission reductions, engagement and (re)insuring the transition. The NZIA TSP’s 29 member insurers are now required to set and disclose at least one target by the end of July, followed by at least one target in each of the three categories by July next year.

Once targets are set, insurers will likely incorporate them into underwriting fairly quickly, according to Weymann. “You can expect those companies that have signed up to the NZIA to implement the targets they define relatively quickly… Every NZIA member company has a clear ambition to reach net zero by 2050,” he said.

This first version of the TSP sets targets for most commercial P&C and specialty lines, including marine and aviation. However, not all lines of business are covered by the current version of the TSP.

“While a vast amount of P&C commercial premium is covered, there are still important elements that need further development that were just not feasible time wise or scope wise for the first version. For example, project-based insurance lines like engineering and treaty reinsurance will be included in future versions,” Weymann explained.

The TSP has drawn criticism from environmental groups that say the targets lack ambition and open the door to corporate greenwashing. Umbrella climate group Insure Our Future, which provided input into the TSP consultation, said the current version contains “gaps and loopholes” and sets “weak targets” that are insufficient to halve insured CO2 emissions by 2030.

“The target-setting protocol offers a menu with different types of targets that insurers can set, from actual emissions reduction targets to targets for insuring clean energy solutions and corporate engagement targets. For each line of business that is within scope, insurers can individually decide whether to apply emissions reduction or other types of targets,” Insure Our Future said.

The campaign group said it will assess insurers’ July targets set under the TSP and will call out leaders and laggards.

Weymann said he understands the perspective of NGOs like Insure Our Future but is confident that this TSP is a very important start for the insurance industry. He pointed out that the TSP is the beginning of a longer-term process and that future versions of the protocol are anticipated.

“On the one hand, we need to take steps towards reaching net-zero, but at the same time we must be realistic about what is possible for individual companies to do now based on available data and real economy ambitions. We have to strike that balance,” Weymann said.

Emissions data is one of the key challenges when implementing the TSP. “The industry needs to work on greenhouse gas data attached to commercial insurance, and obviously beyond commercial insurance to personal lines where material and relevant,” said Weymann.

“In the future, greenhouse gas data needs to be a commodity like financial data today. Here we are unfortunately still at the beginning. It is good that the insurance industry starts by establishing the baseline, but also setting serious targets,” he added.