Talent Development in Asia's Insurance Industry: Bridging Skill Gaps for Climate Resilience and a Net-Zero Future

Climate change, technological advancements, the pandemic, emerging risks, regulatory changes, workforce dynamics, and shifting consumer behaviours are driving transformative changes in the insurance industry. Adapting to these shifts is crucial for insurers to remain competitive and effectively meet customer needs in a rapidly evolving business landscape.

In today's dynamic environment, insurance executives identify human capital as the most critical resource, surpassing financial capital and other assets[1]. Consequently, talent development must be prioritised and cannot be viewed as a secondary concern.

Through a series of articles on the topic of "Talent Development", we aim to highlight the skill gaps emerging from significant industry transitions and recommend strategies to address these issues. In this first instalment, we examine the skill gaps in the insurance sector driven by the evolving risk landscape due to climate change.

Addressing Climate Change Challenges

Asia faces a disproportionate impact from climate change, with an estimated one billion people living in areas vulnerable to life-threatening climate events such as heatwaves[2]. The Asian insurance industry must equip its workforce with the necessary skills to manage both physical and transition risks associated with climate change.

Climate Risk Management Skills

Climate-related risks threaten the financial stability of the insurance sector. The Global Asia Insurance Partnership (GAIP) Policy Think Tank report, “Too Hot to Insure – Avoiding the Insurability Tipping Point,” emphasises the need for insurers to support climate risk adaptation and mitigation[3]. Enhancing climate risk management capabilities involves leveraging expertise in risk assessment and management and developing a workforce proficient in addressing both physical climate impacts and the financial risks of the transition.

The insurance industry must evolve from a “payer to partner” model[4], expanding its role from merely paying claims to offering solutions that reduce and mitigate risks[5]. This requires a multidisciplinary approach, blending actuarial science, data analysis, and domain-specific knowledge with insights from climate scientists, engineers, and academia[6]. Multinational insurers like AIG have already implemented such approaches by establishing Research & Development teams comprising experts from various geophysical sciences to research natural catastrophes and climate-related risks[7].

Building Skills for a Net-Zero Future

At the Global Insurance Forum in November 2023, then Deputy Prime Minister and Finance Minister Lawrence Wong highlighted the insurance industry's roles as underwriters and investors in supporting the net-zero transition[8]. The Monetary Authority of Singapore (MAS) has also emphasized the importance of managing climate risks and supporting a smooth transition to net zero[9].

To achieve a net-zero economy, the insurance industry must address several skill gaps, including climate change management, sustainability risk assessment, sustainability reporting, sustainability investment management, sustainable insurance and reinsurance solutions and applications etc. Developing these skills among existing professionals is essential for the sector's resilience and growth. Reskilling existing employees is economically sustainable, costing less than 10% of the role's salary compared to the over 100% cost of hiring new talent[10].

Programs for Skill Development

Talents with new skills are critical for the industry's resilience and ability to lead in climate risk management. While the shift towards a net-zero economy presents an opportunity for insurers to innovate and develop new products and services that address emerging risks, the transition requires a comprehensive strategy that includes targeted education and training programs to equip professionals with the skills needed for the future.

Several programs have been successfully implemented to address these skill gaps. The Institute and Faculty of Actuaries (IFoA) offers a specialised course that equips actuaries with the knowledge to integrate sustainability and climate risk management into their work. Nanyang Technological University (NTU) offers a Certificate Program in Sustainable Finance and an Executive Certificate in Corporate and Environmental Sustainability, training over 700 professionals across various financial sectors. However, insurance professionals remain underrepresented.

Interestingly, our recent interviews with senior insurance leaders in investment, risk management, sustainability, and general management support the relevance of these programs to insurance professionals. In light of this, NTU is working on an enhanced version of these sustainability-related programs, where the content has a deeper focus on the insurance sector[11].

Embracing Challenges and Opportunities

The GAIP Policy Think Tank Report “Beyond Protection: Steering Towards a Resilient Net Zero Future” discusses the insurance industry's potential roles beyond its traditional role as a provider of financial protection, as risk advisors, educators, influencers, investors, and wealth managers, leveraging on its vast reach and expertise to support the transition towards a resilient net-zero future[12].

To address the challenges and capitalise on the opportunities that climate change has brought, the industry must enhance its climate risk management capabilities. This emphasises the importance of a workforce capable of addressing both physical climate impacts and the financial risks of the transition.

The insurance industry in Asia must prioritise talent development to navigate the challenges posed by climate change. By addressing skill gaps and fostering collaboration between industry and academia, the sector can build a resilient workforce capable of managing climate risks and supporting the transition to a net-zero future.