Whichever news outlet you looked at over the Christmas period, one thing dominated… the weather: From a continual onslaught of flooding in the UK, severe storms and tornadoes in the U.S. to a searing heatwave in Australia.
With the recent warning from NASA that the current El Nino weather phenomenon could be as bad as that of 1998 (the strongest on record), extreme weather is the new normal and the Insurance sector is having to adapt to this landscape with a renewed focus on operational efficiency and risk management.
More recently insurers are realising it is not enough to focus purely on financial risk management, they must be part of the solution to climate change. In response some are actively pursuing innovative solutions and collaborating with a broad network of stakeholders.
This was given a boost in September 2015 with Bank of England Governor Mark Carney’s speech at Lloyds where he called on UK Insurers to help counter the financial shocks that could be triggered by climate change.¹
Indeed climate change is increasing the pressure on CRE teams with insurers and the broader financial services sector facing higher expectations relative to other sectors to deliver across a range of strategic and tactical areas. ²
In search of operational efficiency
Data from Munich Re showed that around $27bn (£18bn) was paid out by insurers for natural disaster claims last year, with weather causing 94% of incidents. To deliver continued growth insurance companies are taking action to mitigate losses and improve their balance sheets, through optimisation of assets and in particular real estate which represents a major cost.
JLL analysis of the top five EMEA insurance companies shows that total real estate* as a percentage of selling, general and administrative expenses ranges from 1.2% to 3.7% indicating that for some there is still room to deliver cost savings in order to match best-in-class.
Key to CRE optimisation is capturing robust portfolio data in order to generate analytics-driven insights across the CRE life cycle. However many global insurance firms still have fragmented CRE structures and lack full data coverage or capabilities to drive insight. Moving towards a centralised data-centric real estate model is therefore a competitive imperative.
Innovation as a solution
Climate change also represents a huge business opportunity for insurers. Successful firms will innovate to provide products and services that encourage clean and efficient energy. Examples include pay-as-you-drive formulas for car insurance, in which premiums are based on mileage, Allianz and its Climate Solutions business and AIG’s Global Alternative Energy Practice.
74% of insurers in a KPMG survey said they lacked the core skills and capability to drive innovation indicating that many are behind the curve.³ Those that are able to foster greater innovation will undoubtedly gain a competitive advantage.
In order to maximise operational efficiency and growth, insurers will need to take the same innovation-focused approach to their real estate – reviewing internal structures, processes and technology, and employing experience-based workplace concepts to attract and retain top talent.
Combatting climate change is one of the biggest challenges of our time and the Insurance sector has the opportunity to play an important role in this transformation. CRE teams will need to be ready and prepared to handle the rising expectations placed upon them.