Moving the needle
Product innovation requires a leap of faith at some point along the way. This is especially true when creating a climate-ready product for the insurance sector. Like many industries, the insurance sector has struggled to create material change when it comes to the climate emergency. This, caused partly by the lack of mandatory incentives or regulation to accelerate decision making and partly because of the monopolisation of data – the lifeblood of the insurance sector.
Yet, within the midst of uncertainty, Icebreaker One’s Standard for Environment, Risk and Insurance (SERI) team has created something material, with the potential to move the needle of the insurance industry in the direction of net-zero. We have seen a collective willingness to create change with (Re)Insurers, Brokers, Catastrophe Modellers and others actively participating in our advisory groups and webinars, helping us tackle the real problems that arise when creating a climate-ready insurance product. They agree with us when we say the time for theory is over because we are making something tangible, with industry backing.
Recognising the hurdles
But, breaking into the market with new ideas and creating something that hasn’t been done before, is no easy feat. The SERI team was tasked with weighing up commercial viability, mapping participants and data flows, identifying a viable use case and recommending an appropriate regulatory seed-bed for the concept to flourish. Above all else, the data sharing platform needed to highlight a definitive user requirement, providing valuable, relevant and meaningful data along the value chain, both in a commercial and environmental sense. Positively, we discovered the two are not mutually exclusive.
Identifying the appropriate regulation came with its own difficulties. The SERI legal and governance team had to be mindful that using the wrong stick would fix the numbers rather than the problem itself. And, while initiatives such as the Task Force for Climate-related Financial Disclosures (TCFD) is forcing companies to think about their climate exposures, it currently only targets listed companies by 2022, with the uncertain potentiality of extending to public listed and private companies by 2025.
One of our recommendations was therefore the extension of TCFD to public listed and private companies by 2025 or sooner, as well as the transition from annual to quarterly reporting. The ramifications of this are that asset managers will have a legal obligation to report their 1,2 and 3 carbon emissions. What’s more, the transition from annual to quarterly reporting could lead to better automation of data flows, increased accessibility and lead to further innovation.
TCFD disclosures are far from perfect however and lack standardisation. This not only makes it difficult to compare climate exposures but can also open the door to greenwashing. The increased frequency of TCFD reporting could help to bring the initiative in line with financial reporting acting as a forcing function that spurs innovation, automation of data flows and pushes it in the direction of a universal standard of reporting.
A viable use case
Our climate-ready building passport (C-RBP) is a tool to demonstrate how the SERI shared governance framework can facilitate data sharing across the insurance value chain. It gives participants the ability to understand mitigation data, with access to a wide range of property data such as energy efficiency and flood resilience and in doing so provides information that is valuable both in reaching net-zero goals but also for the creation of innovative new products and services.
The passport can help asset managers determine whether an asset is stranded or not, giving a better understanding of operational data in a bid to move away from a design-for-compliance culture. And, with commercial property accounting for around 10% of UK energy consumption, the C-RBP can help asset managers and government understand the right renovation pathways to reach net-zero targets. This, in light of the government targeting the reduction of business and industrial energy consumption by 20 percent but lacking specificity in how to achieve it.
The C-RBP is just one example of how the SERI data sharing framework can be used with the SERI team already mapping out future iterations of the framework such as net-zero underwriting. As a whole, however, the framework can be seen as a blueprint, setting a standard for frictionless data sharing that can be adopted by industry in the near future.
As SERI sets its sights on phase two of the project, the team can look back at what it has achieved for the insurance sector but most importantly for realising our net-zero ambitions. The next steps for SERI will be a continued focus on the commercial viability of the C-RBP and its place in the insurance market.