In December 2019, Icebreaker One was presented at COP25 in Madrid. In the four years since then, we’ve undertaken projects spanning the fields of energy, finance and water, maintaining one common and integral thread, that the discovery, access and use of data can markedly accelerate our journey to net zero.
Now, in the lead-up to COP28, with a climate emergency on our hands, we want to reinforce this common thread, highlighting why our work is more pertinent than it has ever been. In order to achieve this, we’ll be revisiting past use cases. These demonstrate our action-led work, showing the potential impact better access to data can have, and its critical role in keeping us within the boundaries of the Paris Agreement.
Data lies at the heart of the insurance industry because insurance is at its core, a business of risk management. With data playing a central part in assessing, pricing, and managing this risk. But, data in the insurance industry is often siloed or isolated to bilateral contracts between the insurance company and the policyholder. What’s more, in order to share data, stakeholders in the insurance industry need to navigate issues of trust regarding how their data will be used as well as issues of commercial sensitivity. All this, while operating within the labyrinth of regulations that underpin the industry. Our work with the Standard for Environment, Risk and Insurance (SERI) programme, aimed to bridge these gaps and siloes by establishing a foundation for net-zero underwriting, aligning insurance practices with sustainable objectives.
Building a case for retrofitting
The energy consumption of existing buildings accounts for around 34% of the UK’s annual carbon emissions. What’s more, 80% of buildings in use today will still be in use by 2050, the same year we have pledged to reach our net zero emissions target. Even if we focus on residential housing, of the 28 million homes in the UK, only 40% of these have an EPC rating of C or higher. There is a stark need to retrofit our existing buildings, in order to improve their energy efficiency, decarbonise and reach our net-zero targets.
In the context of insurance for the built environment, data capture often focuses on assessing a building’s resilience to current and future climate risks. In fact, insurers have a very solid understanding of the risks associated with climate change and how those risks can impact buildings and infrastructure. They do this by evaluating how well a building can withstand or adapt to extreme weather events, rising sea levels, increased temperatures, and other consequences of climate change.
And yet, current short term insurance risk transfer measures are not capable of covering large scale risks caused by long term climate change, in short, the insurance industry lacks a focus on climate change mitigation. And, to adopt this focus, the systemic risks posed by climate change needs be taken into consideration during policy making. This should ensure the industry takes the route of net zero underwriting which, in turn, should incentivise net-zero behaviours from their customers through rewarding better building efficiency and performance. Reciprocally, if policyholders then share data relating to their retrofitting efforts, this information can then be used in underwriting to determine more accurate risk profiles and potential premium reductions.
A climate-ready building passport
The key outputs of our SERI programme were the creation of an insurance product that would provide value across the insurance ecosystem, helping it factor in climate change mitigation. The insurance product created was a climate-ready building passport (C-RBP). It was designed to address industry shortcomings, paving a way for insurers to bring net zero underwriting into their repertoire and ultimately incentivise net zero behaviours like retrofitting.
The C-RBP pools together the physical, environmental, financial, risk and regulatory data of a building in digital form. But more than this, it incorporates data points not widely used in building insurance or in pricing risk. These include the likes of Building Information Modelling (BIM) data, Building Renovation Passport (BRP) data including logbook & roadmap (e.g. retrofitting records) and Energy Performance Certificates.
Merging the untapped data from the C-RBP with existing data, has the potential to give insurers a more well-rounded, accurate and timely view of risk, leading to improved risk pricing. They can, in turn, incentivise net-zero behaviours from their customers by rewarding climate change mitigation efforts like retrofitting. What’s more, building owners can use the C-RBP to gain access to open exposure data and, in turn, better understand their assets’ climate risks and greenhouse gas emissions.
Finally, the C-RBP also has far reaching benefits when it comes to regulation and standard setting. Using a C-RBP could aid regulators in examining a company’s environmental impact by creating a more structured and efficient disclosure process with standardised data up-front. Companies can use the passport in their ESG disclosures for example, in order to demonstrate that it has accurately incorporated climate risks into its business strategy.
Future of the industry
Data could provide key solutions for the insurance industry, especially in the face of challenges it has encountered since our SERI project in 2021. In June this year, the Net-Zero Insurance Alliance (NZIA) – created to reduce greenhouse gas emissions in the industry – saw seven of its members leave. This was amidst growing political opposition from a group of Republicans in the United States who claimed the group might be violating antitrust laws by working together.
The potential benefits of our Climate-Ready Building Passport (C-RBP) could serve as a beacon in these dark times, illustrating how the strategic use of data can significantly advance our mission toward net-zero objectives. By equipping insurers with a comprehensive understanding of risk, the passport becomes a valuable tool for integrating climate change mitigation efforts within the industry. Having said this, these efforts alone may not be enough. Combining government subsidies, green financing, insurance rebates, and retrofitting roadmaps with net-zero building insurance strengthens the case.