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November 02, 2005
Insurers at the Crossroads: Intersection Between Insurance and Sustainability is a Busy Corner
    by William Baue

Swiss Re exemplifies global sustainability leadership, as the chair of its US arm gives the keynote address at a summit on climate change and insurance in Connecticut.


Activity at the intersection between insurance and sustainability is on the rise. Last week, for example, Connecticut state officials held a summit in Hartford (dubbed the "insurance capital of the world") attended by over 30 insurance companies (including seven of the top ten) to address how climate change presents risks and opportunities to insurers.

"Insurers could face a double whammy or a one-two punch from climate change," said Connecticut State Treasurer Denise Nappier, who convened the conference along with the state's insurance and environmental protection department commissioners.

Not only are claims from catastrophic weather events associated with climate change increasing ten times faster than premiums, but also climate change impacts insurers' investment portfolios. Lurking in the shadows of the summit were recent reports by Ceres (a coalition of institutional investors and environmental organizations addressing sustainability) and Friends of the Earth (FoE--an environmental advocacy group) finding insurers behind the curve on climate change.

The summit's keynote address was delivered by Jacques Dubois, chair of the US arm of reinsurer Swiss Re, which has garnered the reputation as a leader on sustainability. For example, Swiss Re co-sponsored with the United Nations Development Programme (UNDP) the release yesterday of a 150-page study by the Harvard Medical School Center for Health and the Global Environment entitled Climate Change Futures: Health, Ecological and Economic Dimensions. Swiss Re also co-sponsored the production of a film on climate change that aired last year in Canada as The Great Warming and is airing today in the US on Public Broadcasting System (PBS) stations as Global Warming: The Signs and The Science.

More importantly, Swiss Re is integrating sustainability into its business model. For example, Swiss Re assesses the sustainability performance of its corporate clients before issuing property or casualty insurance, according to Ivo Menzinger, head of group sustainability management.

"Sustainability performance is a good proxy for risk management," Mr. Menzinger told SocialFunds.com. "Every year, we have our own risk engineers comprehensively screen about 20 percent of our corporate clients, with environmental, social, and governance as part of that screening."

If a company is assessed to be doing particularly well on their environmental, social, and governance (ESG) performance, then their premium would more likely go down, according to Mr. Menzinger. On the other hand, if the assessment shows they are a higher risk because they are not doing as good a job on their ESG issues, then it is more likely their premium would go up.

"We started to include sustainability performance of our clients who are banks, assessing how they deal with sustainability, and depending on the outcome, we have less complicated or more complicated procedures in terms of accepting certain pieces of business," explained Mr. Menzinger. "A leading sustainability performance track record alleviates us from investigating certain controversial activities."

Swiss Re also assesses its corporate clients' performance on ESG issues before issuing director and officer (D&O) insurance. This assessment focuses on climate change risk management by examining companies responses to the Carbon Disclosure Project (CDP), which surveys how Financial Times 500 (FT500) companies handle emissions of greenhouse gases (GHG), the primary culprits of global warming.

"If the answers from our perspective is not sufficient, we talk to these clients and ask them additional questions," said Mr. Menzinger.

All of these assessments apply to Swiss Re's corporate clients, which account for only about five percent of its overall business. The company's primary business stream (accounting for 95 percent of activity) involves offering reinsurance to primary insurers. Swiss Re's assessment of its insurance company clients is less formalized and perhaps less comprehensive.

"We are guided by our Group Code of Conduct where we have embedded our commitment to sustainability, which states that we prefer to do business with other companies that share beliefs and values," said Mr. Menzinger.

Judging from the Ceres and Friends of the Earth reports, finding insurance companies that share Swiss Re's commitment to sustainability could be difficult. The participation in the Connecticut summit, on the other hand, may indicate a shift as insurers recognize they are at a crossroads where they can choose to address sustainability issues and thereby mitigate risk or not. In other words, insurers ignore sustainability at their own risk.

 

 
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