Progressing climate change has caused natural disasters to increase in number and scale, and there is a growing likelihood of disasters of unprecedented enormity. Even short of such major disasters, gently advancing changes in weather destabilize business activities and everyday living and cause physical and economic harm. Natural disasters due to climate change are an enormous risk shared by the entire planet, and there are also concerns that an increase in insurance money paid out in connection with such disasters will undermine the global insurance system.
While we cannot stop climate change, we must take countermeasures to prepare for increased risks. The MS&AD Insurance Group provides the society with security and safety by reinsuring losses from large-scale disasters and sufficiently preparing in other ways. Even as we promote adaptation to climate change by offering suitable services to diminish or eliminate the damage and losses caused to customers by climate change-driven weather disasters, we will also support new businesses helping to mitigate climate change through insurance and consulting.
Key Relevant SDGs and Targets
To promote wider use of modern energy services and to face up to climate change and its impacts, we will provide means of adapting to or mitigating climate change through insurance products and risk consulting.
Ensure access to affordable, reliable, sustainable and modern energy for all
7.1 By 2030, ensure universal access to affordable, reliable and modern energy services
Make cities and human settlements inclusive, safe, resilient and sustainable
11.b By 2020, substantially increase the number of cities and human settlements adopting and implementing integrated policies and plans towards inclusion, resource efficiency, mitigation and adaptation to climate change, resilience to disasters, and develop and implement, in line with the Sendai Framework for Disaster Risk Reduction 2015-2030, holistic disaster risk management at all levels
Take urgent action to combat climate change and its impacts
13.1 Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries
Efforts to Assess/Analyze Climate Change Risk
With approaches to addressing the new risks of climate change in demand, assessing/analyzing climate change risks has taken on greater importance. The TCFD (Task force on Climate-related Financial Disclosure) established by the FSB (Financial Stability Board) has asked that companies analyze the impacts of climate change on their finances and disclose this information because of the growing impact of climate change risks. Given these circumstances, the MS&AD Insurance Group is further accelerating its existing efforts to assess/analyze climate change risks.
Holding a Symposium on Climate Change and SDGs
Climate change and natural disasters have become issues to which solutions are being eagerly sought via SDGs adoption to achieve sustainable societies. In May 2018 the MS&AD Insurance Group held a climate change symposium entitled “Considering the Next Step toward Achieving SDGs with Climate Change in Mind” that featured intellectual figures and specialists who shared information with stakeholders through presentations on the latest developments involving SDGs and on the efforts of individual countries/companies, and who exchanged views in panel discussions.
Various tools newly made available by MS&AD InterRisk Research & Consulting to analyze business risks, including ESG-related and climate change risks, were introduced during the symposium.
Efforts designed to generate synergistic effects between local revitalization and disaster prevention/mitigation have been announced, as well as the flood frequency change forecast map as part of a project being carried out globally to analyze flooding risks due to climate change that was launched jointly with the Shibaura Institute of Technology and the University of Tokyo. The MS&AD Insurance Group is committed to continuing its focus on efforts against climate change in future.
Endorsing TCFD’s Final Recommendations
The MS&AD Insurance Group announced its endorsement of the climate-related financial information disclosure guidelines released in June 2017 by the FSB’s Task force on Climate-related Financial Disclosure (TCFD). At the urging of the UNEP FI, the Group also participates in a pilot project researching disclosure methods for insurance companies in line with the TCFD’s recommendations, and it has joined with insurance companies worldwide to consider scenario analysis methodologies for standard insurance companies and determine what would qualify as appropriate disclosure.
Signing the Japan Climate Initiative
The MS&AD Insurance Group participated as a founding member of the Japan Climate Initiative, designed to allow non-state actors in Japan tackling climate change to comprehensively network, and it will be pursuing a wide range of activities in Japan and disseminating information on these to the rest of the world.
The Group has formulated the medium-term management plan “Vision 2021” that began in fiscal 2018, incorporating the resolution of social issues into our business model and presenting a vision for the company of achieving sustained growth by creating value alongside society. Climate change in particular is one issue we have long been addressing as a whole group. We have offered a variety of solutions based on a wealth of data and meticulous analysis, and we will play an active role in collaborating with other Initiative participants.
Providing an “ESG-friendly Investment Package for Companies”
MS&AD InterRisk Research & Consulting has been offering an “ESG-friendly Investment Package for Companies” since November 2017. ESG-friendly investment has already been mainstreamed globally and, in Japan, Financial Services Agency established the “Stewardship Code” in 2014 to encourage financial institutions to ascertain the ESG-related risks and opportunities of investment destinations and to exercise their voting rights and engage in dialog with investment destination companies. Prompted by the shift in 2015 to ESG-friendly investment by the GPIF, which operates Japan’s employee and national pension systems, ESG-friendly investment has rapidly become the mainstream in Japan as well. Accordingly, companies find themselves needing to take such steps as drafting ESG strategies and bolstering their efforts in this regard as well as disclosing risks and opportunities information concerning their own operations to investors.
As ESG-friendly investment became increasingly popular, the FSB at the end of June 2017 released the TCFD’s final report calling on companies to disclose climate-related risks and opportunities as financial information. In light of this, we have been providing a package that presents comprehensive and issue-specific ESG proposals primarily for companies doing business globally.
Launched Climate Change Research Project with University of Tokyo and Shibaura Institute of Technology
The MS&AD Insurance Group and MS&AD InterRisk Research & Consulting have teamed up with the University of Tokyo and the Shibaura Institute of Technology to undertake the “Large-scale Assessment of Flood Risk Due to Climate Change (LaRC-Flood™)” and publish a “Map of Forecasted Flood Frequency Change Due to Climate Change” as part of this project. To clarify the relationship between climate change and flooding risk, we have also begun extensively and quantitatively evaluating the impacts of warming on the probability of past floods occurring, with a focus on major rivers in Asia.
Advancing climate change could increase flood risk globally in future, which would have a major impact on corporate management. The MS&AD Insurance Group as an insurer will strive to respond to natural disasters and prevent/mitigate damage from these disasters. Climate change in particular has long been an issue of interest for the Group as a whole, and we have been pursuing industry-government-academia collaboration to resolve social issues and bring about our vision of the ideal society.
Providing Risk Assessments and Risk Management Measures
Forecasting natural disasters and all the associated risks of such disasters and then preparing for these emergencies is of great significance. Leveraging the know-how it has cultivated thus far and the large volumes of data it possesses, the MS&AD Insurance Group provides business companies with a variety of risk management services to help them prevent/mitigate disasters.
Risk Management to Prevent Natural Disasters
Global warming-driven climate change has increased the worldwide frequency of natural disasters, and the damage from these disasters has reached enormous levels. The MS&AD Insurance Group is utilizing natural disaster risk models and other tools developed by MS&AD InterRisk Research & Consulting to propose measures that reduce risk based on detailed risk analyses and studies.
Risk Assessment System to Forecast Flood Damage
MSI and ADI joined with MS&AD InterRisk Research & Consulting and a major US natural disaster risk assessment specialty company in May 2017 to develop a new risk assessment system (hereinafter, “new flood model”) that forecasts flood damage. The new flood model can forecast flood damage caused not only by typhoons but also by seasonal rain fronts other than typhoons, localized torrential rains, etc. It is possible to forecast flood damage from overflowing rivers as well as urban flood damage from rainwater that accumulates on the ground surface without being drained off, and to make integrated forecasts of wind and water damage due to typhoons (flooding, storm surges). The MS&AD Insurance Group will be using damage forecast models to enhance its natural disaster risk management and consulting services.
Consulting Services on Water-related Disaster Countermeasures
MS&AD InterRisk Research & Consulting provides support services for water-related damage countermeasures. Focusing on river floods, inland flooding, and storm surges, the company runs inundation simulations using hazard maps and other published materials as well as field work, and then analyzes the envisioned inundation depth/time and the extent of damage. It also helps companies reduce the risk of water damage and formulate/improve business continuity management (BCM) by proposing both “soft” and “hard” countermeasures based on the analysis results.
Consulting Services Using Tsunami Models
MSI and MS&AD InterRisk Research & Consulting use a “tsunami model” that forecasts the damage due to tsunamis developed in collaboration with a major US natural disaster risk assessment specialty company to provide consulting services that include “tsunami damage” in addition to conventional earthquake risk analysis. By using the envisioned damage results from probability analysis*1 of tsunami risk, the first for a Japanese insurance company, it is now possible to present the anticipated damage during the recurrence interval (the amount of damage anticipated once every 200 years) in line with the requests of individual customers, a very difficult task with traditional scenario analysis*2, and to propose priority countermeasures in multiple business locations.
*1: This analysis involves calculating the expected amount of damage to the properties under consideration from all anticipated earthquakes, compiling the results obtained, and processing these with probability statistics. This produces a probability-based image of the extent of risk in accordance with the estimated amount of damage (Exceedance Probability Curve [EP curve]) for each recurrence interval.
*2: This analysis involves envisioning earthquakes that occur on specific active fault lines, troughs, etc., and calculating the anticipated amount of damage to the properties under consideration. This produces an image of the extent of damage in the event of a specific earthquake, such as a Nankai Trough consolidated-type earthquake or a Taisho-type Kanto earthquake.
Weather Information Alert Service
MSI has teamed up with Weather News Co., Ltd., to provide a “Weather Information Alert Service”, the first in the non-life insurance industry, aimed at policyholders of construction/contractor insurance (Construction all-risks insurance, Civil engineering all-risks insurance), fire insurance for companies (Property Master, Business Keeper) and transport insurance (Full Line, Support One)
This service sends out alert e-mails when forecasts for precipitation, wind speed and snowfall surpass certain criteria* at monitored locations stipulated by the customer on a special website (up to five locations) and when lightning is observed within the stipulated criteria for the monitored location*.
(*) Set in advance by the customer at two levels: “Caution” and “Warning”; for lightning, this refers to the distance of the lightning strike from the monitored location. The provision of weather information will help corporate customers prevent/mitigate damage by natural disasters and support their business activities.
Provision of Products/Services to Support Mitigation of, and Adaptation to, Climate Change
Provision of Products/Services Connected with Mitigating Climate Change
There have been many new businesses launched to resolve increasingly serious climate change issues. Actively supporting the growth of these businesses by offering insurance and consulting will contribute to economic revitalization and climate change mitigation. Efforts are also being made to develop/provide products that reduce environmental impacts.
Products that Support Renewable Energy Businesses
Even as we are selling a variety of insurance products that offer comprehensive coverage for a range of risks surrounding renewable energy businesses (asset/property damage, loss of profits, liability for compensation, etc.), we are also indirectly supporting the spread of renewable energies by providing services/information that meet risk assessment/consulting needs.
Solar power generation
Wind power generation
Biomass power generation
Small/medium-scale hydropower generation
Starting Risk Study Report Preparation Service for Wind Power Facilities
MSI and MS&AD InterRisk Research & Consulting offer a “Risk Study Report Preparation Service for Wind Power Facilities”. This service for wind power companies comprehensively assesses overall business risk based on location, facility, and other conditions and provides this risk information in the form of a report. Wind power has lower power generation costs than other renewable energies and is a highly economical energy source but, given concerns about lower operating rates or accidents depending on location, facility design, maintenance and other circumstances, this service is designed to encourage customers to take measures to counter these risks and to help customers to stabilize their business operations.
Publishing “Handbook on Accident/Breakdown Risk for Offshore Wind Power Facilities”
MSI and MS&AD InterRisk Research & Consulting have issued a “Handbook on Accident/Breakdown Risk for Offshore Wind Power Facilities.” This handbook provides information on offshore wind power generation, seen as a major contributor to the development of renewable energies, to suitably ascertain accident/breakdown risk. Offshore wind power generation has many benefits, including the greater abundance of available wind energy than for land-based wind power generation and the ability to upscale facilities because of fewer location restrictions, and expectations are high that it will prove a potent renewable energy source for Japan, a country surrounded by seas.
Publishing “Accident Risk Handbook for Solar Power Businesses”
MSI, ADI and MS&AD InterRisk Research & Consulting have published an “Accident Risk Handbook for Solar Power Businesses” as a joint development tool to aid in the steady operation of solar power businesses. The solar power business has expanded rapidly in the past few years, and the accident risks due to natural disasters have emerged more clearly as a result. This handbook provides information needed to appropriately assess accident risk.
Adapting to Climate Change
Abnormal weather due to climate change will inflict varying degrees of damage and loss on corporate activities, but we can help businesses achieve sustainable development in the face of climate change by suggesting measures to mitigate this damage/loss. With climate change inexorably advancing, a major key to business success will be taking steps to adapt to climate change.
MSI and ADI sell weather derivatives to alleviate customers’ financial losses stemming from unsettled weather. Weather derivatives helps alleviate lower sales or higher costs due to above-/below-average rainfall, extreme heat, cool summers, bitter winters, warm winters, etc., or shortfalls in power production caused by a lack of sunlight for solar power generation or similar problems for other renewable energy businesses.
Food & Agribusiness Comprehensive Coverage Plan
In the agriculture and livestock sectors, unsettled weather resulting in a lack of sunlight, abnormally low or high temperatures, scarce precipitation, etc., brings poor harvests of agricultural products that serve as raw materials and lower production volume of livestock products, the consequence of which is soaring market prices. This constitutes unsettled weather risk.
To cope with this unsettled weather risk, the “Food & Agribusiness Comprehensive Coverage Plan” being sold by MSI provides weather derivative products based on weather indices that impact the harvest/production volume of the agricultural and livestock products covered.
Pacific Ocean Natural Disaster Risk Assessment and Financial Aid Initiative Insurance System
MSI serves as one of the underwriting reinsurance companies for natural disaster risk in the “Pacific Ocean Natural Disaster Risk Assessment and Financial Aid Initiative Insurance System”, set up through cooperation between the Japanese government and the World Bank. The goal of this system is to swiftly provide recovery funding to Pacific Island countries (Samoa, Tonga, Marshall Islands, Vanuatu, Cook Islands) with insufficiently developed insurance markets when they are afflicted by natural disasters (cyclones or earthquakes/ tsunamis) above a certain scale. By participating in this system, MSI supports efforts to deal with natural disasters in the Pacific Ocean region and plays a role in making social contributions to this region.
In the event of a natural disaster above a certain scale in a Pacific Island country, recovery funds are provided through a reinsurance agreement with Pacific Catastrophe Risk Insurance Company (hereinafter, “PCRIC”), the core insurance company administering this program.
*Payments will be made in line with disaster indicators (cyclone wind speed, etc.), using as a standard the envisioned damage calculated using stipulated risk calculation models. With no need for damage assessments, prompt payments can be made.
Supporting Flood Reinsurance System through Participation in Flood Re
MS Amlin has since February 2017 been participating in the “Flood Re” flood reinsurance program established by the UK government and the Association of British Insurers (ABI). Flood Re is operated and managed by the insurance industry using reinsurance funds for flood insurance sold to individuals. It offers households living in high-flood risk areas extensive support that enables them to make preparations against flood damage.