It dawned on me yesterday at the Insurance Australia Group AGM, just how detached corporate Australia is from reality, when the IAG board became genuinely annoyed by questions related to climate change. If the board of an insurance company does not believe climate change is impacting on its financial performance, then it can only spell long-term disaster for shareholders. It also excludes insurance companies from being an important ally in seeking tough climate action from the federal government.
I attended the IAG AGM to ask a few pressing questions about climate risk. Clearly, perhaps after my recent article on insurance and climate change, the board were expecting me.
Have a listen to what chairman Brian Schwartz mutters to his colleagues as he greets me:
Yes, I am indeed ‘that fella’.
IAG experienced natural disaster claims in excess of $1 billion in 2014/15; nearly $500 million greater than they were the previous year. In fact, last year was the eighth in the last ten years, where natural disaster claims exceeded provisions. IAG is not alone on this – its competitors Suncorp and QBE have also experienced multiple years where claims exceeded provisions.
Let’s for a moment look at what IAG is doing, as mentioned by departing CEO Mike Wilkins in response to my question about climate change not getting a mention in their annual report:
- Operates a carbon neutral business (excluding its investment portfolio)
- Founded the Australian Business Roundtable for Disaster Resilience & Safer Communities
- Member of the Geneva Association
- Signatory to the UN Principles for Sustainable Insurance (current chair)
- Participates in the Carbon Disclosure Project
On these measures, IAG is light years ahead of Suncorp and QBE and it can rightly claim to be “the only insurer in the market to be taking a public position on climate change” (Carbon Disclosure Project, 2014). IAG’s work on resilience and disaster mitigation is laudable, particularly in those areas of Australia prone to bushfire and flood. However, mitigation in and of itself is akin to addressing the symptoms of the disease, rather than the disease itself. Climate change is an enormously complex problem that will never be solved by IAG alone. But it is a million corporations like IAG around the globe that make decisions every day which either exacerbate the problem or limit actions to address the problem.
Just how public is IAG’s position on climate change? The last time an IAG executive spoke or wrote substantively on climate and its impacts on the insurance industry, was back in 2010 – a paper by Mike Wilkins published by the Geneva Association. Chief Strategy Officer, Leona Murphy, is oft quoted in industry journals, but it never extends to the mainstream media. If IAG were serious about climate change, why is it not mentioned in its Annual Report? Why is there no research on their website? Why are executives not engaging in the public conversation? Given IAG’s recent experience with extreme weather, it’s hard to fathom why they’re not public advocates for tough action on climate change. We simply need them to lead.
Here is my full exchange with IAG’s board:
In response to my question, Mike Wilkins reiterated that the company believes a price on carbon is necessary to address climate change. If that is the case then why is it buried in their statement to the Carbon Disclosure Project? Where were IAG executives during the federal election of 2013 and the painful carbon pricing debate that we have endured for years? We need IAG and other major companies to speak out publicly in favour of a price on carbon. Lobbying behind closed doors simply won’t cut it anymore. The question of how we deal with climate change as a nation can only be answered when the argument is made in the market place of ideas; in the mainstream media, public speeches, opinion pages and in the public forums open to business.
IAG also confirmed today that it didn’t know if it was invested in coal mines – because their investment portfolio is managed externally. This is an utterly spurious response if ever we’ve heard one. This kind of response may cut it with the blue rinse set before him, but it would be met with derision by the wider investment community if Wilkins genuinely didn’t know where policy holders’ money is invested. If IAG is serious about climate change, it would categorically restrict any investment in coal mining, coal-fired power generation or its associated infrastructure. It is hypocritical in the extreme, for an insurance company to cry poor about extreme weather, while propping up the very industry that is causing those weather events to increase in frequency and severity.
Finally, as it committed to when it joined the Geneva Association, IAG should be investing in renewable energy, energy efficiency and other low-carbon initiatives.
The insurance industry is living with the impacts of climate change today – not in twenty or fifty years. This is borne out by their experiences with extreme weather, which on current trends, will only worsen. They must be the climate change leaders of the business community, engage in the policy debate and educate the community on its potential impacts.
We expect climate leadership from IAG, and we will campaign on this issue until they step up.