Only 8% of insurers are sustainability leaders, Capgemini

Nearly three-fourths, 73%, of policyholders, consider climate change as one of their top concerns, with around 40% of insurers sharing this as a priority, according to The World Property and Casualty Insurance Report, published by Capgemini and Efma. 

“Walking the Talk: How insurers can lead climate change resiliency,” addresses that while over 80% of small commercial companies have taken steps in climate resiliency within the past year, only 8% are identified as “resilience champions,” or leaders of sustainability and climate awareness. The report, which includes interviews with 270 insurance executives and about 5,000 consumers, emphasizes the effects of climate change on the insurance industry and identifies how insurers can approach climate resiliency, mitigate climate risks and integrate sustainability in corporate models. 

“The notion of a resilience master is that you’re effectively firing on all cylinders when it comes to sustainability,” says Executive Vice President, P&C Insurance Leader of Capgemini, Seth Rachlin in an interview with Digital Insurance. “You’ve identified it as a core element of your business strategy and that it’s an active part of how you go about your business… You are working with data in a certain way, so that you have a far better understanding of the actual real climate risk that your book of business represents, and that you’re also pricing that book of business in a way that’s consistent and aligned with the level of underlying risk that’s there.”

The report also includes a number of technologies insurers should embed into their corporate strategy to meet the climate challenge: IoT, artificial intelligence, machine learning, quantum computing and cloud. 

IoT in property and casualty, Rachlin explains, “is really about the state of the object you’re insuring, or the behaviors around that object… It’s all about prevention and mitigation. You can almost imagine a world where home sensors are going to actually tell you that all your windows are closed before a major storm comes.” 

Rachlin also notes that AI and ML technologies should be utilized to create models that can finely predict and indicate the exact location of potential or imminent risks, how they should be priced, and which steps one can take during, or prior to, a climate emergency. Moreover, quantum computing can be used as a more efficient way to consider and model many more potential scenarios. 

“When you think about modeling… that’s where a lot of the elastic capability of cloud comes in,” Rachlin says. “It’s the ability of [the] cloud to store, manage, retrieve and process volumes of data that were inconceivable… Cloud is really a foundational and enabling technology, on top of which the others actually sit.”

Insured losses due to climate change have increased by 360% worldwide in the last 30 years.
Secondary perils, including severe storms, tornados or wildfires, have doubled in the past 10 years – an increase accelerating faster than that of primary perils, such as earthquakes or tropical cyclones.

Insurers are encouraged, through the report, to re-evaluate corporate strategy to seek a balance between risk management and risk prevention. This balance, referred to as a “climate resiliency framework,” should follow in the footsteps of other resilience champions; this may include assigning a chief sustainability officer, adopting climate-risk data into their products, and acquiring ML-based pricing models. 

“It’s a whole program… a line of sustainability that’s about reducing the risk, which makes it good, economically, for the insurer,” Rachlin adds. “Reducing the risk also makes it good for the customer because it means that when – not if, anymore, but when – disaster strikes, they will be better equipped to handle it both financially and socially.”

To combat the effects of climate change, the report concludes with a call to insurers to take three key steps: redesign business models and assign corporate responsibility to executives – such as assigning a chief sustainability officer – with coherent programs, embed these goals and practices throughout the entire company’s value chain and re-evaluate or access new technology to optimize profitability and risk management. 

Which risk management solutions to prioritize depends on the insurer, according to Rachlin. 

 “It’s highly conditional on the nature of the business and the particular set of perils that that business is worried about,” he adds. “Insurers have the real opportunity to differentiate in the market by providing these kinds of services, and a lot of the indicators of what to do and what you should do can actually be data-driven.”