With the world’s eyes on the COP26 summit in Glasgow, Joachim Wenning, Chair of the Board of Management at Munich Re, has assured that climate policy will succeed if it takes into account the “needs of businesses.”
In a new report, Munich Re has called for greater collaboration between the private re/insurance sector and public bodies in order to improve human adaptation to the impacts of climate change.
As temperatures continue to rise, Munich Re believes that different types of extreme weather events will become even more frequent in different regions of the world.
In response, the company believes that a larger percentage of natural catastrophe risks should be borne by insurers, meaning more work must be done to close the global protection gap.
But most regions still lack a road map for how to reach their climate targets, and much more focus needs to be given to alternative ways of limiting fossil fuel reliance.
One approach would be to utilise the price of CO2 as a centralised means of regulating emissions trading, while other worthwhile strategies could involve international collaboration on the construction of renewable-energy, as well as coordinated financing for net zero technologies that remove CO2 from the air is also important, although this remains complex and expensive at present.
“In this regard, quantum leaps are urgently needed,” the reinsurer warned in the conclusion to its report.
“It is only by making sufficient investments in the net-zero transition and in the decarbonisation of industrialised societies that we will be able to maintain our standard of living and mitigate societal hardships – while also paving the way for greater prosperity in poorer countries,” commented Wenning.
“Climate policy will succeed if it takes into account the needs of businesses,” he added. “For the business world, transparency and reliability are vital.”
While the protection gap in industrialized countries has in many cases halved over the last 40 years, in developing and emerging countries, more than 90% of all natural catastrophes losses remain uninsured, and it’s these countries that are due to be disproportionately impacted by climate change.
In many of these places, Munich Re argues that national or supranational public-private partnerships could help, with insurance solutions being jointly developed by the private insurance sector and governments, plus the support of donor countries or the IMF.
Experience shows that risk prevention, in the form of risk-transfer solutions, can even work in countries with low mean incomes by utilising covers with parametric triggers.
In order to ensure structured risk management at the national level, Munich Re recommends that governments appoint Chief Risk Officers (CROs) to monitor risks at a state level, as they traditionally would within a private business.
“Having a governmental CRO of sorts would mean having someone who knows all the main risks to society – and who is responsible for the requisite preventive measures and disaster recovery alike,” Wenning explained.
Climate success will also require the rapid phasing out of the use of fossil fuels, but Munich Re warns that doing so will be immensely costly.
In recent years, worldwide more than $300 billion per annum has been invested in renewable energies for power production alone, but this sum would need to be quadrupled by 2030 to meet climate goals, in addition to substantial investments in grids and storage .
Munich Re suggests that a sufficiently high CO2 price of more than $100 per tonne by 2030, made possible by comprehensive trading systems with a fixed target of net zero emissions by 2050, should be used as an incentive for climate-friendly technologies.
“The longer we as a global community fail to properly combat climate change, the worse the risks posed by natural catastrophes and consequent losses will be,” said Ernst Rauch, Chief Climate and Geo Scientist at Munich Re.
“The fact that this year’s Nobel Prize for Physics went to climate researchers shows that the world should have listened to the experts sooner. Now time is running short, but in many cases we’re still lacking the reliable framework needed to efficiently protect the climate,” Wenning continued.
“Together with market incentives, the proper conditions can drive the development of new technologies to transform the global economy into a climate-neutral economy. It’s a good thing that the role of businesses in climate protection is being discussed here in Glasgow. One of Munich Re’s main priorities – both as an insurer and as an investor – is to help new technologies for a low-carbon economy achieve true breakthroughs.”