In conversation: Ben Howarth, Climate Change Manager, ABI

As the ABI’s lead on climate change, Ben Howarth brings a unique overview to the challenges facing insurers. He occupies a new role with a mandate to organise and forge a path for British insurers in identifying and tackling a range of issues and opportunities over the short, medium and long term.

His engagement with members brings a valuable helicopter view of the issue, and his personal involvement in developing the ABI’s Roadmap is one which will help firms at whatever stage of the journey they are at.

I always enjoy Ben’s perspective and was pleased to have a chance to catch up ahead of COP26.

Hi Ben! Can you tell us a bit about your role as Climate Change Manager for the ABI? What bought you to that position and what does it entail?

I’ve been at the ABI for just over six years. I started working mainly on motor insurance, then did a role on Brexit in 2018 and then spent a couple of years in the Director General’s office. It has given me a good background across the different parts of the ABI membership and the sector, which I hope will help us to tackle one of the biggest public policy challenges.

The ABI has always had an interest in climate change and we were founding members of ClimateWise. But we were conscious that we needed to ramp up our efforts quite considerably and so this role was created at the beginning of this year as part of putting a purposeful climate change strategy in place.

Myself and Rebecca Lea, who is a policy advisor in our Prudential Regulation team, both focus on climate change full time, and then we work with a taskforce from across our policy, advocacy and regulation directorates.

Ben Wilson is our Director of Corporate Affairs and Climate Change, so he has overall responsibility for our strategy.

How important is work on climate change as a priority within the ABI?

The ABI Board has made climate change one of our biggest priorities, which meant a bigger team working on it but also we wanted to be deliberately challenging and ambitious to define industry best practice rather than simply explaining what the industry is doing right now.

The first big output was the ABI’s Climate Change Roadmap, can you give our readers a quick overview of that work?

With the Roadmap, we worked with a Board sub-group involving 10 CEOs from leading firms across the sector, chaired by Phoenix CEO Andy Briggs. We’ve tried to set out the role that the ABI as a trade association, working with our members, can play in tackling climate change over time.

The first part is focused on aligning portfolios with net zero and moving away from carbon intensive activities. That’s clearly a long-term goal and it’s not just about setting far away targets but having a clear evidence base of how you’re going to get there and some sort of independent assessment to give transparency and credibility to what you’re saying.

The second part flips that on its head and focuses on how we pay for the alternatives to the carbon economy and maximising the industry’s own investment capacity.

The third part focuses on our own operations as a sector, so things like insurers’ own carbon footprint but more significantly their supply chain and making sure they are doing as much as possible with the wider network of businesses they work with.

The fourth piece is more about our role in the wider societal transition over time, looking what the industry can do to help its customers and stakeholders to become more sustainable.

Who is the Roadmap aimed at?

The audience is our own members as much as it is regulators and policy makers. For ABI members we tried to set out industry best practices and areas to focus on.

For policy makers we wanted to show where we think the sector can make a major contribution, but also where we would need some policy reforms to support the industry in fulfilling that role.

Our engagement with government has changed since publication, because we’ve set out a clear commitment and defined our areas of focus. but, we know it’s not the final answer on climate change.

It’s quite interesting to see a trade body deliberately setting a high standard for its members here…

Yes – and we know these are aspirations but the Board members wanted us to be ambitious in our scope and are pushing members towards best practice. Linked to that is that the ABI won’t be defending firms who don’t live up to the need to reach Net Zero.

What’s the response been so far?

We’ve had positive feedback from the UK and Scottish Government and climate campaigners, such as the WWF. I think members are finding it helpful. At this point, nobody has said that we’ve put something unachievable out there or got it wrong.

What’s your next area of focus?

I expect supply chains will take up a lot of my time for the next 12 months, after that part of the roadmap flagged the role of an industry-wide approach. 

The footprint of our industry across the economy is probably a lot bigger than a lot of people appreciate; for instance most garages and most repair engineers that support the claims process are going to have work put their way by an insurer at some point. Many of those may be SMEs and they won’t necessarily have engaged in the climate agenda as deeply as some larger firms – so ABI members have a chance to influence them and help those sectors move to Net Zero.

By taking a consistent approach, so that suppliers are always being asked the same question and asked to demonstrate their climate credentials in the same way, that will have an impact on how society moves towards net zero.

At this stage, it won’t be a case of saying ‘oh if you don’t do this we’ll, we’ll stop working with you’ but ‘this is what we expect – this is how you can do it’.

I think that the industry as a whole looking at this will have a bigger impact than individual firms acting alone and that will mean that the resources and the networks that you actually need to adopt sustainable practices in these sectors develops.

What sort of support does the sector need to drive a greener supply chain? What are the challenges?

We already have some established practices to build on. For example, there’s a relatively established second-hand market for cars through salvage networks, so it’s rare for there to be complete waste even when cars are written off.

But more broadly you need the skills and you need people who know how to repair all types of products and get them to be usable again, and you need those markets and networks for second-hand parts and materials.

You need customer buy-in as well. I think one of the challenges is to say to someone ‘actually we’re going to replace the things in your home that have been damaged after a leaky pipe with second-hand materials that we’ve sourced for you’. Some customers will be delighted about that because they will prioritise being sustainable, others will still want and expect a brand new TV.

Recently the European Central Bank reported results from their economy wide stress test that though risk exists, the overall sector risk is coming back as low to moderate – especially if we reduce emissions. Is that being brought up by some ABI members too, that they are going through the analysis and they’re not bringing up that high level of financial risk that regulators and government are projecting? So either they’ve got more to do to clean up their assessment or dig deeper, or we might not have that great financial risk because it’s long term and we can lean into it?

Clearly the wider risk to society is huge and the scientific evidence on that is compelling. As a sector that’s so embedded in the wider economy, the widening society risk is going to impact Insurance and Long-Term Savings in the long term.

However, it may well be that when firms are performing analysis on their specific books, exposures and financial models, that they conclude they are relatively well protected. That’s what firms should be doing; making sure they can meet their obligations to policyholders.

If the conclusion of some of the reporting is that firms don’t think they’re in severe trouble as a result of the climate change risks that we can foresee, that’s a good thing. But equally, that doesn’t mean that the wider issue isn’t a huge problem and that economic change on the scale forecast won’t have an impact on how the industry changes.

Likewise, this isn’t just a challenge about what insurers are actually insuring right now. Insurers may well be looking at their potential exposure and saying ‘I can pay all of those claims confidently I’ve got enough reserves, I’ve got the right process in place, I know what I’m going to do even if we get a particularly bad year for claims.’ However, many of the losses we can expect from climate change won’t be insured. Most of the hurricane losses in the US will be uninsured, for example

So it isn’t just an industry challenge. To take you back to our Roadmap, one of the things we pointed out from the Bank of England CBES exercise is that it’s really important not to just see that exercise as regulatory compliance as an important lesson that could feed into the wider public policy debate and work out where the pinch points are or the challenges and that the industry can kind of learn from that.

I think there’s a capability for the financial sector to support the transition in the economy. So if the financial risks are manageable, from an insurance or investment point of view, it shows that we can go a little faster to facilitate the transition to a zero carbon economy. Rather than hiding behind needing to get the models right we can step out of the box, and take a little more risk to be able to help those sectors grow.

I agree with that. Complying with the regulations is important but inevitably the regulators will be focused most on financial stability and ensuring that insurers are not overly exposed to risk.

But regulatory compliance on its own is not enough to position the industry well for the climate challenge.  For example, the ABI co-signed the WWF’s recent letter supporting mandatory publication of transition plans for the whole economy. Those transition plans will involve looking beyond pure modelling of financial exposure to asking how business strategy will adapt.

Approaching the problem from the position of getting high carbon activities off portfolios is only one half of the equation – we have to have an alternative in place too. For the ABI’s Long-Term Savings members, that’s very much about investment capacity and supporting the transition.  For our GI underwriting members, there are going to be a different set of insurance products.

And the transition technologies will still face perils – all these wind farms are going to be insured against extreme weather, etc. – so it all joins together, you can’t separate these issues completely out. But there is great opportunity for innovation.

The Make My Money Matter campaign makes a powerful claim, aimed at consumers, that ‘simply making your pension green’ will cut your carbon 21 times more than giving up meat, flying and switching energy providers. What’s your response to that?

It’s a really powerful statistic and, aside from the climate agenda, it is a way of saying to people that if you become more engaged in your pension and where it’s invested you can have quite an impact on society.

However, we shouldn’t over-simplify the issue and say ‘if only pension funds changed their priorities it would all get sorted out’.

Pension providers have strict regulatory requirements to ensure they can meet their obligations to savers, but that places considerable regulatory barriers on investment. 

The ABI has been arguing for Solvency II reform, as part of the Treasury’s ongoing review, in order to allow Long-Term Savings providers in the UK to remove the barriers that can make it very difficult to invest in infrastructure.

Green technology projects should be a natural fit for Long-Term Savings providers the return is over a longer time span than a banking or private equity investor would look for. Research we commissioned from Boston Consulting Group showed that ABI members could provide a third of the total investment needed to meet the UK’s Carbon Budget up to 2035. But, that requires regulatory reform and for those investment opportunities to be structured in a way that works for them and protects customers.

There’s a lot of really promising green investment technology, but it’s not all risk free. As well as regulatory reform, we’d like to see Government and local authorities structure those investment opportunities in a way that you manages those risk and makes them more appropriate for investing people’s savings into.

So yes, there’s a lot of potential to make change but there are some practical steps that need to be taken.

Are you seeing more consistency and clarity coming from the UK government, with its new strategy to reach net zero by 2050 and the green taxonomy, so that they can see the map of a managed transition and industry’s role in that?

The Government’s Net Zero strategy and Greening Finance Roadmap should give businesses more clarity than they had before, but not every decision has been taken and it is clear that there are significant areas for future consultation.

However, at least it is now clearer what they don’t know and that’s part of the part of the challenge, so we’re getting there. I don’t think there’s anyone who could honestly say they have an absolute and complete plan for reaching net zero.

How do you frame the debate amongst your insurance members around reducing their appetite and coverage for climate intensive industries? Do you think firms have a responsibility to restrict business from brown companies or make it harder for them to operate harmful projects?

The starting point would be to learn from the progress that’s already been made in the investment sector.

There’s a pretty strong consensus that the correct approach is to use responsible stewardship – to be very engaged with the companies you’re investing in and in the case of underwriters with clients, and to have ambitious goals for where you want those companies to move.

It’s not just looking at the current carbon footprint of a business. The broad thing investors are looking for in their stewardship, and which underwriters should be looking for, is credible transition plans and alignment with net zero.

Where insurers should be ambitious and demanding is in being clear that they want to be seeing that information and for firms to demonstrate that they’ve got the right decision making process.

Where insurance is different to investment is that insurance cover provides a really important protection for real people. So, I think we’ve got to be really careful about demanding that insurers withdraw coverage entirely from risky activities. We need to make sure the people who work in or live near industrial sites or energy facilities have adequate protection and access to compensation.

There’s a role for responsible underwriting. At COP26, we’ll hear more details on the Net-Zero Insurance Alliance, which will play an important role in bringing the global insurance sector together to resolve this question

And finally, what’s your advice to firms heading in 2022 and beyond?

My one piece of advice which applies to everyone in our sector is to look at where your real core interactions with your customers are. Whatever you do, that’s where you can have the most impact – so perhaps don’t get lost in the maze of climate change acronyms and everything that’s changing and all the data that’s coming in.

So, for a general insurer, I think the question they should ask themselves is ‘okay, what actually happens when we settle the claim’. It’s practical and impactful to examine how you can reduce the carbon footprint of what you do on a day-to-day basis and change customer and supplier behaviour. That also gives insurers the most credibility in terms of being able to say they are taking climate change seriously.