Transforming disclosure data into insurance business impact
Insurers face an array of disclosure mandates requiring them to document how their business models support ambitions to transition to a low-carbon emissions future while addressing the implications of climate change for their operations. Beyond fulfilling regulatory obligations, however, insurance companies can use data analytics to reveal business-critical risk insights, point to growth opportunities and lift the quality of their underwriting.
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We live in an era where seemingly every watt of energy and every tonne of carbon carries added weight, as society works toward a future where our activities have less of an environmental impact. Much like homeowners who conduct an energy audit to understand the carbon footprints of their houses, insurers around the globe are also performing audits on emissions generated by the companies and activities they protect.
A growing number of mandates in multiple jurisdictions require them to report the greenhouse gas emissions of their insurance-related activities, and insurers are likewise required to assess their exposure to the implications of climate change. Disclosure obligations laid out by governments and regulators all aim to promote sustainable finance, support better risk management and ensure the transition to a low-carbon economy.
At Swiss Re, our own sustainability reporting for nearly a decade has been structured around recommendations by the Task Force on Climate-related Financial Disclosures (TFCD), established after the Paris Agreement in 2015 to help guide standards for emissions reporting. Meeting these commitments is critical as our industry does its part.
For insurers, an important benefit of assessing their exposures towards transition and physical risks is that they can unearth actionable insights about their portfolios. These insights can help guide insurance companies' efforts to avoid losses from physical risks, expose unseen transition risks, unlock attractive growth opportunities and improve their underwriting quality.
Overcoming analysis challenges
The complexity of assessing transition and physical risks often means that insurers seek out support in this area. Our Risk Consulting and Analytics team is already supporting a growing number of clients by helping them with their climate-related data gathering processes and to overcome challenges that accompany this, including persistent gaps in information.
For instance, with regards to transition risk, only about 24,000 corporations disclosed data about their greenhouse gas emissions voluntarily to the world's largest environmental disclosure database. Though disclosures are rising, incomplete information can make it difficult for insurers working on their own to gather, interpret and report on their portfolio footprint.
Swiss Re can help overcome such hurdles by taking a holistic approach that combines our sophisticated modelling capabilities, proprietary data and in-house research capacity with relevant information from third-party data providers. To address gaps in data, for example, our predictive model can estimate the greenhouse-gas emission intensity of companies worldwide.
The value of having industry-specific knowledge from a global reinsurer should not be underestimated, either. With insurance experience cultivated over more than 160 years and operations in more than 80 countries worldwide, Swiss Re offers confidence to clients that they are being supported by an organisation that has performed the same kinds of analyses before, including on its own portfolios.
Beyond compliance
Sustainability analytics can also provide a sophisticated view of physical risks contained within an insurance portfolio, paired with Swiss Re experts' perspectives on the implications of various transition pathways on physical risks that accompany floods, storms or wildfire.
Swiss Re can also benchmark the carbon intensity characteristics of clients' portfolios against aggregated industry figures. This can pinpoint areas where insurers may want to consider management actions to rebalance the composition of their portfolios in a way that diversifies exposures to physical and transition risks.
Insurance clients can also take advantage of insights about insurance premium pools available and the attractiveness of risks. The data that emerges can be integrated into an insurer's own underwriting, as well, to aid them in their risk selection and costing decisions.
Climate-related disclosures required by regulators are a reality. With support from partners with deep analytics expertise, however, the data collation solution can be transformed into something very powerful: deep insights that enable insurers to navigate the complexities of climate risk while making their businesses more resilient.