Climate risk is an existential threat not just to the insurance industry but to the broader financial services industry, an Aviva board member has warned, given its role in absorbing risk, but that needs to change.
Mark Versey, CEO of Aviva Investors and board member of its parent financial services group, told a London Climate Action Week event that climate risk posed a fundamental risk to the future of the insurance industry.
“For now, we’ve just increased the price [of insurance], but at some point, people can’t afford that. And if you don’t insure a building, no one will finance it,” he warned.
As climate risk is “existential” for insurance companies, insurers have “a massive role to play to step up and do what we can, but we cannot solve it on our own”, he said.
Leah Ramoutar, director of environmental sustainability for the Aviva Group, said a “paradigm shift” is needed, to stop the insurance industry being seen as a risk absorber.
“We need to be more of an enabler of the transition, and we can do that through our investment activity, underwriting activity and the convening skills that we have,” she said.
The event also heard from Greta Talbot-Jones, director of natural capital at Aviva Investors, the asset management arm of the group, who argued that insurance cannot solve all the underlying risks.
“Insurers provide a service to the assets,” she said. “They have a dependency through measuring climate risk and pricing it, but they are there to provide a service. They are not there to solve the fundamental issues underlying those assets.
“It’s very easy to point your finger at insurers, but they are a participant and thought contributor to the solution. They can play an interesting role in pricing risk, but they shouldn’t be the backstop to solve the crisis,” she said.