Climate Change and Flooding: Where Regulation, ESG, and Risk Management Collide

climate change

Have you ever seen a title with so many buzzwords? As we pass through the stormiest winter in almost a decade, which was the cherry on top of the hottest year on record and the 11th wettest year the UK has ever seen, climate worries are at the top of many agendas. While many industries and organisations are taking a lacklustre approach to their environmental commitments, the insurance market has no such luxury. As weather patterns are projected to become more extreme over the coming decades, MGAs and Brokers will have a pressing duty and obligation to adapt.

With the implementation of the new Consumer Duty in 2023, the FCA’s input on insurance transactions seems more prominent than ever, and as standards of conduct are raised to ensure “good outcomes” for clients, the pressure is on for intermediaries to ensure the products they supply offer the best-possible value. This has motivated the market and contributed to the expansion of innovative solutions such as parametric insurance products which can respond to the increasingly severe weather conditions we are facing in the UK. It has never been more important for MGAs and Brokers to demonstrate where they add value.

Closely linked to conduct-related regulation is the industry-wide drive towards embedding Environmental, Social, and Governance policies into business processes and considerations. Famously, insurers have found themselves at the centre of protests and boycotts around whether they are willing to cover risks that have a detrimental impact on the environment. Insurance coverage and practices cover the entire ESG spectrum.

Are claims payments to focus more on cost-saving than environmental impact? Does replacing ‘new for old’ conflict with the decades-old ‘reduce, reuse, recycle’?

As climate change has a more damaging effect on towns, rising water levels and increasing flood and storm damage risks will start to play more of a role in where people choose to live; with more and more construction on flood plains as towns expand, more pressure will be placed on brokers to source terms and the market to provide cover for known flood risks.

As regulators wake up to the threats of climate change-related risks, the PRA now subjects insurers to stress tests around flooding vulnerability. As a Chartered Insurance Underwriting Agent, CE is committed to building an ESG strategy that will ensure we have a positive impact on the environment and wider community; this includes hybrid working, greatly reducing our carbon footprint in travel, and a paperless and minimal-waste policy in the office.

Risk Management is the foundation of the insurance industry, and ultimately, we do need to control exposures through thorough and creative underwriting methods. At Commercial Express we use a data-led approach to underwriting to take advantage of technology, assessing flood risks at a granular level, ensuring clarity for our clients, and keeping us ahead of changing exposures. We invest heavily in digital solutions that are backed by experienced underwriters, resulting in the best of outcomes for all parties; we can quickly implement change, and engage new technology to accomplish this. In the end, only time will tell, but the future appears bright for insurance providers who are able to adapt.

Article written by Jonah McSweeney – Technical Underwriter at Commercial Express

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