London insurers to focus on climate change and cyber in 2020

Climate change and cyber warfare risks will be the two key London market topics that the International Underwriting Association (IUA), the body that represents the growing insurance company market in London outside of Lloyd’s, will focus upon in 2020, as stated in its latest business plan. The association announced this week that it has established a new market group to examine the growing impact of climate change policies on a range of insurance activities, including investment, underwriting and risk management. This follows recent initiatives from leading regulators and international bodies that seek ways to direct insurers, banks and other financial institutions towards more environmentally-friendly investment and operating activity as natural disasters become ever more frequent, expensive and difficult to deny that they are related to global warming. Governor of the Bank of England Mark Carney, governor of Banque de France François Villeroy de Galhau and chair of the Network for Greening the Financial Services (NGFS) Frank Elderson issued a letter in April of this year, for example, urging financial institutions to take the matter much more seriously. Action cannot be left to national governments alone, they said. “The prime responsibility for climate policy will continue to sit with governments. And the private sector will determine the success of the adjustment. But as financial policymakers and prudential supervisors, we cannot ignore the obvious risks before our eyes,” wrote the regulators. This is why 34 central banks and supervisors – representing five continents, half of global greenhouse gas emissions and the supervision of two thirds of the global systemically important banks and insurers – joined forces in 2017 to create a “coalition of the willing”: the NGFS. In April, the coalition’s first comprehensive report sought to translate commitments to act on climate-related financial risks into “concrete action”, said the regulators. “The four recommendations in the report provide all central banks, supervisors and the financial community with deliverable goals that will help to ensure a smooth transition to a low-carbon economy. “As long as temperatures and sea levels continue to rise and with them climate-related financial risks, central banks, supervisors and financial institutions will continue to raise the bar to address these climate-related risks and to 'green' the financial system. We need collective leadership and action across countries and we need to be ambitious,” they added. In mid-December last year, the Bank of England and Prudential Regulation Authority announced a biennial exploratory scenario (BES) to test the resilience of the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk. The bank said it is important that firms, and other stakeholders such as itself, continue to develop innovative approaches to measure climate-related risks before it is too late to ensure resilience to them. The final BES framework will be published in the second half of 2020 after consultation, and the results of the exercise will be published in 2021. The IUA's decision to focus on climate risk in 2020 is partly as a result of this national and international regulatory action. Dave Matcham, chief executive of the IUA, said: “The business challenges facing companies are evolving and the work of the IUA is changing to reflect this. In 2019, the Prudential Regulation Authority called on insurers to develop a strategic approach to managing the financial risks from climate change, and our members are responding. More than 20 companies have already nominated representatives to our new committee on this subject." Cyber is unsurprisingly another big focus for the IUA this year, as the association said the topic continues to dominate member discussions across a wide range of different lines of business. The IUA’s dedicated cyber committees will focus, in particular, on the consequences of cyber warfare and a major new research paper will be published this year. Model cyber clauses and an underwriting questionnaire are also part of the 2020 business plan. “Questions around the challenge of covering cyber risks are being asked across the London company market and will feature prominently in the IUA’s work throughout this year. Indeed, we will be producing an overview document for members that allows them to monitor the many different cyber projects that are being pursued across our 20-plus underwriting groups,” said Mr Matcham. Other research and best practice projects planned by the IUA in 2020 will cover delegated authorities, developing technologies, illegal ship-to-ship transfers and the discount rate. The IUA’s public policy work will clearly include updates for members on regulatory developments in relation to Brexit. “Attention will be increasingly turned towards the shape of a new trading relationship between the UK and the EU, and opportunities for company market interests to be featured in new trade negotiations across the globe,” said the IUA. The association also said that, in a post-Brexit environment, there will be greater potential for a more independent UK approach to international trade restrictions. The IUA’s sanctions database will therefore be expanded.

London insurers to focus on climate change and cyber in 2020

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