Reinsurance
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Joe Tocco

By

CEO, Americas, AXA XL

Admittedly, I was a bit of a skeptic about the impact of climate change. Having grown up outside of Buffalo, NY and experienced the frigid winters there, anything a few degrees warmer did not sound like a bad scenario. Recent insured losses driven by changing weather-related hazards and increases of people and property in harm’s way, however, have prompted many, including me, to take a another look at climate change and its potential impact on our society, our environment, our economy, and our day-to-day business operations.

Record-breaking weather
The 2021 Atlantic Hurricane season has just begun but we’re all wondering if it will mirror last year’s track record. 2020 ended with 30 named storms, the most named tropical systems in recorded history. Twelve of those named storms made landfall in 2020 which was also record-breaking. Previously, nine storms made landfall and that was set in 1916.

And while we saw so many hurricanes last year, it’s the intensity of the storms in recent years that is really raising concern. Hurricane Harvey, a Category 4 storm that hit Texas in 2017, was considered a 1-in-1,000-year flood event. Unlike many hurricanes where wind results in significant damage, Harvey brought three straight days of rain or more than 50 inches of rain.

It turns out that in-land floods are the most frequent natural disaster in the U.S. Earlier this year, a Stanford University research report indicated that intensifying precipitation contributed one-third of the financial costs of flooding in the United States over the past three decades, totaling almost $75 billion of the estimated $199 billion in flood damages from 1988 to 2017.

And hurricanes and precipitation aren’t the only weather conditions that has gotten more intense. A study published in 2019 from the Florida State University Department of Geography found that the power of tornadoes has increased 5.5% per year since 1994. While there appears to be no significant increase in tornado activity in recent history, some researchers are calling out a geographic shift in where they are occurring, moving out of “Tornado Alley” and into other regions of the U.S. And we can’t overlook the effects of extreme heat and prolonged drought conditions in some regions, which may be contributing to increased wildfires.

The business climate around climate
Concerns about climate change are getting harder and harder to ignore, especially for businesses. Businesses are likely to feel continued pressure from various stakeholders – from employees to regulators, from their customers to investors – to consider how their operations and their business decisions contribute to a changing climate.

As government and society in general take a closer look at climate change and look to make changes to control potential warming, businesses will be faced with making changes too. New regulations and reporting requirements are likely to change quickly. For one, the Securities and Exchange Commission (SEC) has been looking at potential disclosure requirements that would require publicly traded companies to disclose detailed greenhouse gas emissions and other information on its climate-change impacts and risks to investors. New rules are anticipated sometime this year.

Some investors have made it loud and clear that they will be applying greater pressure on the companies they own to cut emissions and prepare to operate in a low carbon future. The UK’s biggest asset manager Legal & General Investment Management recently announced that it was dropping four companies from a number of its funds over their “insufficient” response to the climate change.

Businesses are likely to feel continued pressure from various stakeholders – from employees to regulators, from their customers to investors – to consider how their operations and their business decisions contribute to a changing climate.

Taking meaningful action
Many, including AXA XL, are already taking preemptive steps to minimize their carbon footprint. Last fall, we unveiled our Carbon Management Strategy at AXA XL which aims to accelerate our transition towards a more sustainable and less carbon-intensive economy by 2050. AXA XL’s strategy aligns with AXA Group’s goals and the objectives of the Paris Agreement to limit global warming to below 1.5 °C. More recently, AXA shared news that is chairing the Net-Zero Insurance Alliance which is made up of eight leading insurers and reinsurers who are eager to play their part in accelerating the transition to net-zero emissions economies.

At AXA XL, we’re focusing on three areas - energy consumption, people movement (travel and vehicle fleet), and resources consumed. When I travel, for instance, I’m prompted to consider the impact of my flight before each booking. While AXA has our global green strategy, AXA XL colleagues around the world are taking an active part in helping us adopt stronger green practices locally. This year, despite working remotely, US colleagues joined together and launched a Green Committee to help us all learn more about what can be done to implement more sustainable practices in our offices and in our homes.

Finding new opportunities
As efforts to minimize the impacts of climate change pick up, there will certainly be new opportunities to be had. Greater energy efficiency has its merits, helping businesses reduce cost and be better stewards of the environment. There are also opportunities for innovation efforts. Innovators will develop products and services that support climate mitigation/adaption and that minimize environmental impacts such as new and more sustainable products and services that are less carbon intensive or help with carbon reduction by others.

To help support our clients’ greener businesses, AXA XL is always looking at ways to increase our green insurance products. This year, for instance, our Construction team introduced an insurance product to protect projects using Mass Timber, a building material that is gaining popularity in the North America. The construction industry is seeing significant benefits working with Mass Timber which includes what’s called cross laminated timber (CLT). It’s a sustainable building material which can be prefabricated, requiring fewer workers and less safety concerns, speeding up construction time. In 2020, the North American Environmental team added Green Building Materials Expense supplemental coverage to its Pollution and Remediation Legal Liability (PARLL) policy. This insurance coverage protects businesses against loss, remediation expense and legal defense expenses that may arise from sudden and gradual pollution conditions. Now businesses not only have the financial help to clean up a pollution incident, such as a fuel oil spill, they can take it a step further. With this added Green Building coverage, in the event of a pollution incident that causes property damage, clients can choose to use green, sustainable materials in the property’s restoration.

Similarly, another AXA entity, AXA Climate, continues to develop parametric insurance solutions to address climate-related risks. (Check out this explainer video to see how parametric insurance works: https://www.youtube.com/watch?v=Qpf31NhEaJc) To help companies learn more about climate change, AXA Climate launched Climate School, a digital learning program.

Engaging our clients on climate
Climate change can impact businesses in so many ways. That’s why we are continuing to actively engage our clients in conversations about climate and its impact. We recently hosted a webinar, Climate Change: Impact, Preparedness and Building Resilience, drawing more than 250 of our brokers and clients in a discussion about the necessity for businesses to assess and understand climate-related risks and developing a plan to address them.

Over the last year, we’ve connected with our clients and brokers on many virtual events, but few have garnered the engagement that this webinar did. It’s clear that we are all looking at climate change risks, and the impact it will have on our businesses.

The most obvious, of course, are the potential operational risks associated with natural catastrophe weather events that can cause damage to properties and disruption to supply chains. There are many preventative actions that businesses can take to minimize the potential property damage extreme weather poses. AXA XL Risk Consulting’s team members spend day in and day out helping our clients implement loss prevention strategies to help existing facilities withstand more extreme weather conditions. Their recommendations range from advice on storage and supplier alternatives for clients in natural catastrophe prone areas to new technologies that can help detect the first sign of smoke and water intrusion.
We’re also seeing more clients call on their expertise when building new facilities with sustainability in mind. More businesses are looking at the potential of a construction material, like Mass Timber and new developments in energy conservation – including more energy efficient lighting systems to solar power and other energy storage systems. Through our risk consulting services, we’re helping our clients keep up the pace to better protect their assets with a sustainability focus.

Risks of failing to act
Climate change is clearly changing how our clients, employees, shareholders, and other stakeholders evaluate business and interact with them. It’s going to prompt many of us to rethink how we do business. Failing to do so will come with its own risks.

Businesses that do not prioritize the impacts of climate change and act on them could lose a lot – a competitive edge, supportive investors, the best talent and much more.

The topic of climate change can still trigger debates. While the debate continues for some, many are not waiting to see what else may happen. They are preparing for whatever could happen. They are building up their business resilience.

And we, at AXA XL, are here to continue the climate conversation, by advancing our own understanding of climate change effects, implementing these findings into our risk assessment tools and frameworks, and remaining committed through product development and finding new ways to help our brokers and clients’ address their climate change challenges.

 

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Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

US- and Canada-Issued Insurance Policies

In the US, the AXA XL insurance companies are: AXA Insurance Company, Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following AXA XL surplus lines insurers: XL Catlin Insurance Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor Insurance Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.