Climate change is set to be the next big emerging risk focus for the London insurance market, which has a huge opportunity to step and up and deliver risk transfer solutions, Sean McGovern, CEO of UK and Lloyd’s at AXA XL, told CRE. Despite obvious difficulties in meeting this promise, he believes current signs suggest the London market is ready and able to do deliver.
Risk managers, meanwhile, are extremely well placed within organisations to be at the centre of climate change and wider ESG discussions, McGovern added. They can provide huge value by simply leaning on insurance partners’ expertise alone, he said.
McGovern was making the comments following publication of AXA’s Future Risk Report 2021, which revealed that climate change is the biggest concern for UK risk experts and the general public, echoing global findings. On a global scale, the top three risks were climate change, cyber and then pandemics.
In the UK, climate change was followed by cyber and pandemics among risk experts. For the UK’s general public, pandemics ranked second and then terrorism.
“To see climate change back on top of the risk ranking after pandemic concerns being number one last year is a strong indication of how heavy this issue is weighing on the minds of business and the general population,” said McGovern.
He believes climate change is a massive challenge and opportunity for the insurance sector, and particularly plays to the strengths of the London market.
In fact, he feels climate change and the transition to net zero offers perhaps the biggest opportunities for the London market to embrace new areas of risk and product design during the next decade. He compared the situation to cyber risk, which recently asked similar questions.
“In a sense, on climate change it is a little bit like the cyber market was ten or so years ago. It was a new, emerging risk that the insurance industry ultimately had to figure out how it was going to provide solutions for, and I think climate is the next big one,” said McGovern.
He explained there is a “huge” amount of activity in the London market in the buildup to COP26 next month. And although he conceded that coming up with solutions to help reduce the impact of climate change will not be easy, he feels progress can be made if insurers harness the energy and enthusiasm in the market currently.
“This is where the London market can come into its own because these are complex, large risk issues that need to be addressed. These are the risks that the subscription market in London is designed for. Everybody can effectively take a small piece of a very significant risk problem, be a bit experimental and take a little bit of risk where we can’t point to historical data in the way we often would like. London can be at the bleeding edge of the risk environment. I genuinely believe the London market is set up to be successful in this space,” he said.
He also stressed that climate change solutions require collaboration between government, insurers and business. Like others, he believes risk managers are “ideally placed to be at the centre of all this and put the pieces of the jigsaw puzzle together” for their organisation.
“We are clearly in a corporate world now where there are growing expectations on business by all stakeholders – whether that’s investors, regulators, employees or NGO’s – to take purposeful action. When it comes to these ESG risk issues, and particularly climate, risk managers are in a position to really facilitate that communication within their business about risks and those opportunities, and help drive the corporate ESG agenda,” he added.
Part of this strength comes from the expertise that risk managers can access fairly easily from risk transfer partners.
“They can leverage their often very strong relationships with the insurance industry to bring the best of the insurance industry into their organisations and facilitate that communication between brokers, carriers and their own c-suite. Risk managers are extremely well placed to drive partnership between the insurance market and their own organisations. Remember, nobody can solve this on their own,” said McGovern.
“Risk managers can get quite far along by using that insurance resource. From our point of view, we have a very well-resourced and effective risk engineering consulting practice focused on helping clients solve any problem that is on their mind,” he added.
The insurer said the top three risk in AXA’s risk report reflect a growing recognition that we live in a fragile world, with people more sensitive to this idea since the pandemic. This demands a truly international response, which is endangered by the current political climate, he added.
“All of these three issues – climate, cyber and pandemics – are truly international problems and that is what make them some of the most challenging to resolve. And we know we are in a challenging international political environment. So, questions around the ability of governments to work collaboratively on these issues is going to be critical. Therefore, we need governments coming together not drifting apart to face these three challenges head on,” he said.