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IAN: Axa has in August debuted in HK a heatwave parametric cover for HK and Macau outdoor workers. The product design involved 150 experts globally. Could you share with us what is the most challenging part in the design of this product?

Chelsea: The technical expertise in climate modelling has been built within Axa over decades, starting with natural catastrophes and in more recent years expanding to 50+ climate change factors with the establishment of Axa Climate. As our global climate is changing every day and unpredictability of weather especially temperature and rainfall become more volatile, our technical and scientific teams need to strive to update our datasets and models constantly.

We are proud to leverage Axa’s technical expertise to provide such purposeful insurance protection like the Heatwave Parametric Insurance in Hong Kong. Whilst the challenge in modelling the projecting future weather patterns will likely remain very steep, we strongly believe in the investment and dedication into these areas will provide better protection for all of our customers.

IAN: The HKMA has in December 2023 released a research paper which indicated that global warming can meaningfully lower housing prices (due to more severe typhoons, inundating risks), ultimately posing a risk also to the banking sector due to devaluation of the collateral value of banks’ mortgage loan assets. How are insurers helping to mitigate such risks to properties? 

Chelsea: Indeed, the volatility and severity of climate phenomenon due to global warming is creating uncertainty in valuation of physical assets and disruption to everyday operations. We have had feedback from several banking institutions and valuations companies which highlight the importance of taking into consideration climate exposures and risks when conducting their credit and valuation assessments.

In some areas of the world, we can see that certain types of natural disaster insurances are becoming unavailable, such as those for wildfire, flood etc.  This is creating uncertainty in other parts of the financial services value-chain.

“We believe that clear understanding of risk, then strategic planning for adaption and mitigation actions is the best approach to address secondary perils.” Chelsea Jiang, AXA

We believe that clear understanding of risk, then strategic planning for adaption and mitigation actions is the best approach to address these risks. We are here to provide the full suite of services from climate risk assessments, strategic and engineering adaption/mitigation actions recommendations and insurance transfer offerings, to help customers navigate this complex and ever-changing area.

IAN: For the first half of 2024 natural catastrophes already caused direct economic loss of CNY93.2 billion (US$12.8 billion) in China. What role can Hong Kong play in helping to reduce the protection gap in China?

Chelsea: Hong Kong’s role as risk management centre of expertise for Greater China is very clear and valuable in this area. With the wealth of knowledge accrued and available in the Hong Kong insurance industry, we are well positioned to provide risk analysis, alternative insurance solutions expertise to the Greater China region.

With the abundance of international insurance and reinsurance capacity available in Hong Kong under a well-regulated capital regime, we are able to help the Greater China region to better manage these catastrophe risks.

IAN: Global warming is leading to more severe convective storms which seem to be more severe and last for longer. How is Axa advising corporate clients on how to mitigate such risks posed to their businesses? 

Chelsea: We are utilising our key assets in risk engineering, Axa Climate and insurance to provide customers with scientific insights as to their current and future climate exposures. We are able to conduct in-depth climate risk assessments and specifically highlight the risk grading of each peril/factor at an asset level.

In addition to providing clients with a deep understanding on their exposures, we also advise on risk mitigation and adaptation measures with quantifiable costs and results so that clients can prioritize and investment in these improvement areas. From an insurance perspective, we are working with clients on helping them to realise the impacts of these mitigation and adaption actions in their insurance programs through specifically designed insurance coverage and benefits.

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Insurers are playing a pivotal role in fostering the transition to a low-carbon economy through various initiatives, collaborations, and advocacy efforts. As key players in the financial ecosystem, Insurers contribute significantly to sustainability by directing capital towards green projects and mitigating climate-related risks.

Insurers are increasingly investing in green bonds and financing sustainable ventures, thus channeling funds into projects that support environmental goals. For example, major firms collaborate with financial institutions to ensure their investments align with sustainability criteria. By supporting green initiatives, insurers not only enhance their portfolios but also contribute to the overall shift towards a sustainable economy.

“Insurers act as risk managers, providing coverage for climate-related risks, including natural disasters. This support enables the development of new technologies aimed at reducing carbon footprints. Zurich are leading the way by offering specialised coverage for emerging risks such as solar panel installations and electric vehicle (EV) chargers,” according to Eric Hui,  Chief Executive Officer of Zurich Insurance (Hong Kong) and chairman of Zurich Insurance (China).

Advocacy and thought leadership
Insurers also serve as advocates for climate action, leveraging their expertise to influence public discourse on sustainability. Through participation in ESG forums and industry panels, they share best practices and promote collective action towards a low-carbon future. Zurich, for instance, has been active in various discussions around climate change, emphasizing the insurance sector’s role in shaping sustainable practices.

“Insurers act as risk managers, providing coverage for climate-related risks, including natural disasters. This support enables the development of new technologies aimed at reducing carbon footprints.” Eric Hui, Zurich

Moreover, insurers can foster a culture of sustainability within their organizations. By implementing training programs focused on sustainability and climate risk management, they equip their workforce with the knowledge and skills needed to drive change.

“Initiatives such as the Hong Kong Climate Charter are crucial in establishing a framework for sustainability within the insurance sector,” said Hui.

“This charter outlines climate principles tailored to local needs, promoting transparency and accountability through improved climate disclosure practices. By encouraging collaboration and the exchange of ideas, such initiatives lay the groundwork for a unified approach to achieving a low-carbon economy,” he added.

ESG in underwriting
Insurers are increasingly integrating sustainability and ESG factors into their underwriting and investment decisions.

“Underwriters reassess risk appetites by incorporating ESG scores into risk assessments and pricing models. This approach allows for better evaluations of potential clients while encouraging improvements in their ESG performance,” according to Hui.

In investments, insurers employ negative and norms-based screening to exclude non-compliant sectors, ensuring alignment with international standards. This comprehensive analysis of risks and opportunities enables insurers to engage in impact investing, targeting projects that deliver social and environmental benefits. Zurich, for example, has reduced the carbon footprint of its Hong Kong portfolio by 65% since 2019, demonstrating a commitment to sustainable investment practices.

Emerging trends
The APAC reinsurance industry is witnessing significant changes driven by increasing natural catastrophes and emerging risks such as cyber threats and pandemics.

“Insurers are responding to these challenges by developing specialised coverage options for green assets and renewable energy projects, addressing operational risks and regulatory changes,” he said.

Parametric insurance products in particular are gaining traction, offering quicker payouts based on predefined weather events, thus enabling faster recovery and encouraging investment in sustainable practices, according to Hui.

“Furthermore, sustainability-linked insurance products are emerging, incorporating criteria that promote eco-friendly behaviors among policyholders.”

Challenges
Despite these advancements, insurers face several challenges in aligning their practices with sustainability goals. A major hurdle is the lack of quality ESG data, particularly regarding scope 3 emissions from clients.

Additionally, the evolving landscape of climate risks necessitates constant reassessment of risk models to maintain insurability.

“Insurers must navigate shifting sustainability regulations and develop robust performance metrics for reporting which can be resource-intensive,” said Hui.

“Balancing market demands with sustainability objectives poses strategic challenges, as does the risk of being accused of greenwashing. Ultimately, insurers must navigate these complexities to achieve a sustainable and financially viable business model,” he added.

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