Rethinking risk: The insurance sector's role in the climate transition

Matthew Hill, CEO of Chartered Insurance Institute: “We’re proud to be playing our part in facilitating that change through educational initiatives…

Matthew Hill is the Chief Executive Officer of the Chartered Insurance Institute (CII) since April 2024. He comes with a rich and very diverse career path. Matthew studied Biochemistry at Lady Margaret Hall, Oxford.

Praveen Gupta: Increasingly, more and more European insurers and reinsurers are moving away from insuring and investing in fossil fuels. Would you expect this to be replicated globally?

Matthew Hill: The evolution of markets over the past few years has not been smooth, reflecting differences in political and public sentiment towards fossil fuel extraction around the world. For example, we saw a lot of firms in Europe withdraw from these markets between 2018 and 2023, but that wasn’t mirrored in North America, Latin America or Asia at the time.1 My reading of commentators’ views is that little has changed in the past couple of years that would suggest a further decline in participation in the short term, though there is also more talk about the adoption of novel solutions, such as self-insurance or expanding captive markets.

“I believe the sector is doing what it has always done well – reacting and evolving to the changing environment.

However, I think it’s equally important to look at the way in which our profession is supporting the development of new, greener technologies. We are seeing substantial growth in solar, wind and tidal energy along with storage capabilities. Insurance companies recognise that this is the long-term future of our energy needs and are facilitating investment in them around the world.

Novel technologies are not without risk themselves, but I believe the sector is doing what it has always done well – reacting and evolving to the changing environment. We’re proud to be playing our part in facilitating that change through educational initiatives, such as our Certificate in Climate Change, and by bringing experts together to discuss challenges and find potential solutions, as we did at the end of 2023 when we held a conference dedicated to sustainability.

PG: Climate risk has a much broader scope entailing biodiversity loss and pollution. Are we ready to address the growing challenge with due urgency?

MH: The biggest challenge with climate change is uncertainty. Knowing the direct and indirect implications of individual actions for distinct environments can be hard. However, if any profession were well adapted to handling that challenge, it’s the insurance profession. Climate risk is necessitating the rethinking of traditional approaches to risk management, pricing and claims modeling, while the inevitable opening of some protection gaps is actually providing the incentive for existing firms and new entrants to develop novel solutions.

“The biggest challenge with climate change is uncertainty… However, if any profession were well adapted to handling that challenge, it’s the insurance profession.

We’ve seen some good examples of this in recent times, particularly with the development of parametric products that pay out automatically under certain circumstances. As such, I have no doubt that the insurance profession can find ways to support societies where it is desired. For me, the challenge is more around widening the conversation with policymakers and other stakeholders, so we all best understand the challenge we face and work together to find the right responses.

PG: Are we ready for yet another pandemic?

MH: I think the insurance profession proved during the COVID pandemic that it exists to serve society and is a critical enabler of resilience and recovery. It’s often said that the next crisis will be nothing like the previous one, so it’s hard to say whether anybody is truly ready, but it’s apparent that our profession has responded to the challenges encountered by individuals and firms at the start of this decade through the development of new forms of cover, such as the development, transit and storage of vaccines.

PG: With the arrival of #Polycrisis, don’t you think a new risk architecture is called for?

MH: I’m not sure the paradigm in which we now find ourselves has crept up on the insurance profession. We are a sector that is home to global firms, as well as niche specialists, who are all interconnected by brokers, underwriters and reinsurers that openly talk about the challenges and opportunities they face on a daily basis. Organisations like the CII help to further shine a light on the work of the sector by bringing participants together and distilling conversations and findings for other audiences, such as policymakers and the public. The openness with which we share information encourages debate and new participants to enter our market, who can bring fresh ideas, technology and ways of working. By implication, our risk architecture has been continuously evolving since insurance came into existence, and I think it will continue to do so in myriad different ways into the future, reflecting societal need.

“Organisations like the CII help to further shine a light on the work of the sector by bringing participants together and distilling conversations and findings for other audiences…

PG: Is Climate Change getting the due attention it deserves by insurance and risk management curriculum?

MH: There is no doubt in my mind that the insurance profession understands the severity of climate change. Annual natural catastrophe losses of at least $100 billion have become a fact of life, with no country seemingly immune to the impact of climate events. More than 40% of the world’s population now reside in climate-vulnerable locations and around 20% of global corporates are facing financial rating downgrades by 2035 due to climate vulnerabilities. The CII has held dedicated conferences on the subject, as well as developing new qualifications, CPD and practical guidance to help professionals understand and navigate the issues.

That’s not to say there is not more that can be done. The size of the challenge undoubtedly means that a societal response is needed, involving policy makers, regulators, technology developers and other stakeholders. For our part, in 2021 we introduced a dedicated Certificate in Climate Change. Since then we have had nearly 300 learners take the certificate, with broadly similar numbers (c70) in each of the past three years. The syllabus was reviewed and updated in 2023, and we will complete a further update in early 2026.

PG: Many thanks Matthew for these excellent insights. My best wishes for your leadership in these challenging times.

This Q&A is also published on the author's blog. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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