Business travel has been estimated to represent about half of the greenhouse gas emissions created by many businesses.

As awareness of climate change risk increases at boardroom and top management level among companies in Bermuda’s insurance and reinsurance sector, corporate strategies and governance are changing. In addition, lessons learnt from the Covid-19 pandemic have helped underline this.

The reconsideration of carbon-intensive business travel is one of the themes identified in the 2020 Climate Change Survey Report released by the Bermuda Monetary Authority.

Some insurers will use lessons learnt from the pandemic when dealing with climate change risks, and this will be in areas such as policy wording and underwriting portfolio diversification. On the latter, this will mean limiting exposure concentration in particular industries that have the potential for widespread disruption, as was the case with tourism when the pandemic hit.

The BMA has thrown the spotlight on climate change as part of its effort to support Bermuda’s climate change initiatives. The 16-page report is based on 170 responses from insurers. It looked at the level of understanding of climate change risk, and the impact on strategy and governance, product development and investments.

Some insurers have implemented environmental, social and corporate governance strategies on their investment portfolios, such as not reinvesting in thermal coal mining or power generation using coal. Beyond financial risk, some said a key driver for their actions concerning climate change was “significant reputational risk” among their customers and investors.

There has also been a degree of stress-testing to stimulate climate change and its potential impact on underwriting portfolios and investments.

Climate change could also bring significant opportunities in the form for new exposures and insurance products in the renewable energy sector, the survey reported.

The BMA said the survey was a trial run that would serve as a basis to set regulatory and supervisory expectations for insurers’ impact assessment of climate change risk, and define future filing requirements.

Craig Swan, deputy chief executive officer of the BMA, said: “The goal of our climate change efforts is no different than with any of our other efforts – to identify and ultimately establish best practices and align our framework accordingly.

“These efforts will require collaboration, innovation and a problem-solving mindset across industry and jurisdictional borders. One of the more tangible tools in our regulatory toolbox that we foresee using is our sandbox facility.

“This time-tested facility, which we will be expanding beyond the insurance sector, creates the necessary flexibility to explore innovative financial services products that may serve as climate change adaptation tools.”

Click on Related Media to read the 2020 Climate Change Survey Report, or visit: www.bma.bm/publications/bma-surveys

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Climate Survey Report