Franziska Arnold-Dwyer has the honour of winning the 2024 climate risk research paper of the year.

Arnold-Dwyer, an associate professor of law at University College London, has been celebrated for her thought-provoking exploration of how insurers can influence climate action through a unique legal framework.

Her book, Insurance, Climate Change, and the Law, published earlier this year advocates a shift in how the insurance industry approaches climate risk, and emphasises its potential role as an enabler of positive environmental impact.

In an interview with InsuranceERM in March, Arnold-Dwyer shared insights into the inspiration behind her book, the evolving role of insurance in the face of increasing climate risks, and the challenges she encountered during her research.

Inspiration and objectives

When asked about the motivation for writing the award-winning book, Arnold-Dwyer pointed to her observations in 2019, when she began noticing regulatory conversations around how banks and insurers should manage the financial risks of climate change.

She had a realisation: "I felt strongly that there was something amiss. Namely, that the focus was almost exclusively on the inward impact of climate change on an insurer's balance sheet, while the outward impact—how an insurer's actions affect the environment—was being overlooked."

This concept, known as double materiality, was central to her argument and served as the foundation of her work.

Arnold-Dwyer explained her book is the first to systematically explore the intersection of insurance, climate change, and the law.

"I wanted to create a comprehensive guide for my readers, mapping the legal and regulatory challenges that insurance companies face due to climate change," she said.

She also felt the role of insurers in combatting climate change had been "under-examined and under-appreciated," which led her to develop her key concept of "insurers as enablers" of climate action.

The evolving role of insurance

Insurers are increasingly recognising their capacity to contribute to the energy transition and to foster climate resilience, not only by providing insurance cover, but also through more direct interventions, such as impact underwriting and investment in green initiatives.

Arnold-Dwyer envisions insurers playing a leading role in climate action by supporting policyholders and other stakeholders in their transition to greener practices.

"My vision of insurers with positive impact is one where they actively support climate mitigation, adaptation, and resilience measures, contributing to climate finance through investments that support a sustainable future."

One of the most significant challenges Arnold-Dwyer faced in her research was the issue of insurability in the context of climate change.

As the frequency and severity of natural catastrophes rise, she explained, "it is becoming more difficult to insure property against natural hazards at affordable prices."

This growing uninsurability leads to protection gaps that have devastating effects on communities, businesses, and entire economies. Insurers, bound by accountability to shareholders and regulators, must balance premium income and capital requirements with the rising liabilities that come with climate risks.

Arnold-Dwyer also identifies the challenges posed by transition risks—such as technological, regulatory, and market changes—as well as limitations imposed by antitrust laws, which can hinder collaboration within the industry.

Beyond economic considerations, Arnold-Dwyer notes the difficulties in aligning traditional corporate responsibilities with the need for climate action.

While the concept of 'corporate purpose' focuses on shareholder value, she noted that "stakeholder capitalism" and "environmental stewardship" are beginning to challenge this paradigm.

Influence on policymakers

Arnold-Dwyer hopes her research will raise awareness among both policymakers and insurers regarding the vital role insurance can play in climate action.

She wants policymakers to recognise the opportunities for insurance-based solutions to climate risks, while also acknowledging the regulatory and legal challenges that need to be addressed.

Arnold-Dwyer's findings advocate leveraging the relationships insurers have with policyholders and investees to influence behaviours and attitudes toward climate risk. She expresses satisfaction with the idea of "insurers as enablers" of climate action. Ultimately, she believes her research presents a framework for how insurers can meaningfully contribute to the transition to a Net Zero economy.

For as the expert states, climate change is a common concern of humankind. "The private sector, including the insurance industry, must contribute to solutions that promote low-emission, climate-resilient development."