Association of British Insurers                            FSUK0022                           


Written evidence submitted by the Association of British Insurers


  1. The ABI welcome the opportunity to contribute to the Select Committee’s inquiry on the Financial Sector and the UK’s net zero transition. In our response we have aimed to set out the industry’s commitment to tackling climate change and what our sector is already doing to help support customers adapt to the risk of climate change. The submission does not aim to provide answers to each of the committee’s question and we have focused on the information most relevant to the inquiry. We are committed to working with the UK Government to support the transition to net zero and we have responded to the recent BEIS/HMT consultation on updating the Net Zero Strategy. We are also actively engaged and working with the Transition Plan Taskforce and their current call for evidence.


  1. Insurers are on the front line of responding to the physical risks of the climate crisis, particularly the increasing risk of flooding. In response to the damage caused by Storms Dudley, Eunice and Franklin, that hit much of the UK in February, insurers expect to pay out nearly £500million in dealing with 177,000 claims. This follows pay-outs totaling over £540million following the flooding from Storms Ciara, Dennis and Jorge which hit the UK in February 2020. 


The role of our sector in tackling climate change and the ABI’s Climate Roadmap

  1.            In July 2021 the ABI published the industry’s Climate Change Roadmap, which set milestones that must be met by 2025 to keep our sector on track to halving emissions by 2030 and reaching Net Zero by 2050. Our Roadmap outlines our sector’s role in supporting the delivery of the UK’s Net Zero strategy and meeting its carbon budgets, identifying areas where the ABI’s diverse membership can collaborate to drive meaningful action. The ABI Climate Roadmap was developed by a Board sub-group of CEOs in 2021, with the intention that it would help the wider sector benchmark themselves against best practice. The ABI’s commitment to achieving net zero can also be demonstrated by our Race to net zero accelerator accreditation status.


  1. Ultimately, a problem on the scale of climate change can only be tackled jointly between networks of sector peers acting in tandem with local and national policymakers, and civil society. Therefore, the Climate Roadmap seeks to identify where ABI members are taking action and where further action is needed, but also where we will need to work collaboratively beyond our sector to achieve the change needed. The Climate Roadmap sets out four key pillars where our industry can support tackling climate change, become a more sustainable sector and support the Government’s Net Zero ambitions:


  1.            We are committed to providing an annual update on our progress in driving forward the work outline in the Roadmap. We recently published our first update, to coincide with our second Climate Summit event on 8th June, which shows that we have made meaningful progress in all four areas of our roadmap. Some of the most important developments include:


  1.            Significant progress setting transparent Net Zero targets and joining the ‘Race To Zero’:

-         Amongst the market share represented by ABI members, c89% of the Long-term Savings market and c54% of the General Insurance market is part of the UN-backed ‘Race To Zero’ campaign.

-         This progress has been acknowledged with the ABI being granted ‘Race To Zero accelerator’ status by the campaign.

-         Of those not yet part of Race To Zero, a survey of ABI members showed that 94% of respondents are currently considering becoming a ‘Race To Zero’ member


  1.            Across the whole sector, good progress is being made setting targets and preparing Transition Plans:

-         27 out of 34 respondents to a survey of ABI members (79%) have already set a Net Zero target that has been approved by their Boards

-         30 out of 34 respondents (88%) already developing their Net Zero Transition Plan, well in advance of this becoming mandatory.


  1. Development of Good Practice Guidance on engaging with industry supply chains to reduce emissions linked with claims handling and servicing customers


  1. Further efforts to support resilience, building on industry initiatives such as Flood Re’s Build Back Better scheme


How can the Government maximise the impact of our sector?

  1.        The ABI and its members remain committed to working constructively with the Government to play our part in delivering its Net Zero strategy and helping meet the Chancellor’s ambition to make the UK the first Net Zero aligned financial centre.


  1.        By delivering on these priorities, the Government has an opportunity to build on the enhanced reporting and disclosure framework it is developing through its Greening Finance Roadmap (including the Green Taxonomy, the FCA’s proposed investment labelling regime and the work of the Transition Plan Taskforce – all initiatives the ABI is actively supporting and contributing to). We have identified five key actions for Government to maximise the impact our sector can have:


Investing in the transition to net zero

  1.        There is a strong appetite from ABI members to invest in transition activities. ABI members have already made significant investments in the initial tranches of UK Government Green Gilts, alongside other innovative forms of direct investments, such as sustainable transition loans.


  1. Now that we have left the EU, the Government can set the UK apart from its continental competitors if it embraces reforms that enable institutional investors to support the Government’s ambitions both to ‘level up’ across the country and take a leading role in transforming our economy and society to reach ‘net zero’.


  1. Solvency II is one of the first major post-Brexit reforms of the UK’s world leading financial services sector. The current Solvency II framework is one of the world's most prudent and cautious prudential regimes – now is the time to make sure we have a regime that is fit for the UK’s needs. Independent KPMG modelling, commissioned by the ABI, demonstrates that, with no additional cost to the taxpayer, two specific reforms to Solvency II can unlock many billion to support the HM Treasury objectives for this review by helping level-up our communities, tackling climate change and investing in the businesses of the future, while still upholding high levels of policyholder protection to international standards. 


  1. The insurance and long-term savings industry already plays a crucial part as investors in local economies across the UK and, through a package of meaningful reforms to the Solvency II regulatory regime, we have a far greater role to play in supporting the Government’s levelling up plans and contributing to the transition to net zero.


  1. The upcoming Financial Services and Markets Bill also presents a significant opportunity to unlock investment and ensure that we have a regulatory regime that better suits the needs of our world leading sector and enables the industry to support the Government’s objectives on levelling up.


  1.        Collaboration is needed between the UK Infrastructure Bank and the Prudential Regulation Authority to ensure that the investment opportunities identified as crucial to meeting the UK’s Net Zero targets are not then disincentivised through the regulatory regime.


  1.        The Government should work with the ABI, regulators and stakeholders to structure investment opportunities to align with the responsible approach to investment required to finance insurance claims and pension payments. Developments such as aggregated innovation hubs and structured consumption funds would allow the sector to invest in transition infrastructure across its full lifespan.


Adapting to climate change and reducing development in high flood risk areas

  1. As an industry responsible for protecting people’s homes and businesses, we have long been calling for more robust planning policy around development in flood risk areas and increasing our resilience to climate related flood risk. The measures in the Levelling Up and Regeneration Bill to put greater emphasis on environmental outcomes in the planning process and recognition of the need to protect areas at high flood risk areas are very welcome. Adapting to climate change and managing flood risk is a challenge for the whole of our society and we look forward to working with Government and Parliament as the Bill progresses.


  1. We are calling on the UK Government to use the Levelling Up and Regeneration Bill to improve the planning system to ensure Net Zero alignment, including by reducing inappropriate development in high flood risk areas and ensuring new homes are resilient to climate risk. This must be underpinned by a long-term funding commitment to investing and maintaining the UK’s flood defence infrastructure. 


  1. Insurers are on the front line of responding to the physical risks of the climate crisis, particularly the increasing risk of flooding. In response to the damage caused by Storms Dudley, Eunice and Franklin, that hit much of the UK in February, insurers expect to pay out nearly £500million in dealing with 177,000 claims. This follows pay-outs totalling over £540million following the flooding from Storms Ciara, Dennis and Jorge which hit the UK in February 2020. 


  1. A review of the National Planning Policy Framework presents an opportunity for the Government to close the loophole in the guidance that accompanies the Framework, which means that developers can build and sell properties in flood risk areas simply if they leave space for flood defence measures to be installed in the future. We believe that this loophole should be closed to ensure the developer is held responsible for any measures that are necessary to ensure that properties are protected from flood risk to the highest possible standard.


  1. It is also essential that Environment Agency guidance on surface water flood risk is fully considered as part of the planning process. We support the Government’s announcement that the National Infrastructure Commission will carry out an investigation into Surface Water Flood Risk, due to report back in November 2022.


  1. With 3.8million properties in England at surface water flood risk and the Government’s plans for boosting the supply of new homes, Sustainable Urban Drainage Systems (SuDS) can play a pivotal role in ensuring that new properties are built in a manner which helps to manage surface water flood risk at the local level. There is an urgent need to implement the Government’s policy on SuDS under the Floods and Water Management Act 2010 to ensure mandatory installation in all new builds, regardless of size. 


Investing in Flood Defence Infrastructure

  1. A joint report published by the Association of British Insurers and Flood Re has highlighted the vital need to maintain the UK’s flood defences in a good condition. The report, ‘Modelling the Impact of Spending on Defence Maintenance on Flood Losses’, was carried out by flood risk specialists JBA Risk Management. JBA evaluated the benefits of maintaining flood defences over a 30-year period for several different spending scenarios. The report identifies that flood defence maintenance is very cost effective - for every £1 increase in maintenance spending almost £7 is saved in capital spending on defences. The report highlights that increasing current maintenance spending by 50% could extend the lifespan of defences by an average of eight years. 


  1. At the Autumn 2021 Budget and Spending Review, we welcomed the Government’s continued commitment to £5.2 billion spending in flood defence infrastructure over the next six years. We particularly welcomed the announcement of an additional £22 million per year in flood maintenance defence spending over this period. We continue to call for a long-term funding settlement in flood defence spending to adapt and protect against the increasing risk of flooding from climate change.



June 2022