How insurers can get proactive about climate change
The recent UN Climate Change Conference (COP26) in Glasgow and the PSI COP26 Sustainable Insurance Series had me thinking about potential opportunities for insurers around mitigating climate change. As an industry, we’ve talked a fair amount about how assessing the risk associated with extreme weather events, like polar vortexes and heat domes massively affects losses. Accenture research has also highlighted how critical it is for today’s carriers to display a commitment to important causes, with a majority of millennial and Gen Z consumers prioritizing companies that take a stand on issues that matter to them.
Addressing climate change isn’t just about environmental sustainability. Insurance leaders who take an active role with climate-related initiatives and establish themselves as part of the solution will stand out in the market. We’ve found that Environment, Social, and Governance (ESG) trends are projected to drive a $206 billion opportunity over the next five years. As my colleague Kenneth Saldana puts it, “sustainability [has] evolved beyond altruism into a new business imperative.”
Maintaining accountability and transparency along the way will be critical for both internal buy-in and customer trust. In this blog, I wanted to explore a few ways I see insurers stepping up to lead the charge to combat climate change.
Focusing on innovative products that address climate concerns
I believe that every insurer has a part to play in reshaping the way we approach sustainability in the enterprise and beyond. One of the ways insurers can meet customer demand for sustainable offerings and take steps towards strengthening sustainable business practices is to provide products and services that directly or indirectly drive positive environmental impact.
My colleagues Nina Jais and Ravi Malhotra see an opportunity for insurers to offer new products like disassembly, refurbishment, and recycling. They can also offer favorable premiums to customers who choose these options for the assets they’ve insured, such as vehicles or homes.
Swiss Re recently developed a cutting-edge product that protects the coral reef off the coast of the Yucatan Peninsula—essentially, underwriting nature. The company teamed up with The Nature Conservancy and regional governments in Mexico to protect this natural asset which if damaged would result in major economic harm to the region.
Finally, insurers can also act as indirect catalysts for change in other businesses. One way is to incentivize sustainable practices by charging premiums related to ESG risk. When it comes to underwriting, focusing your portfolio on sustainable companies can also help move the needle on environmental impact across industries.
Working towards net-zero emissions within the organization
As we move into a climate-conscious future, organizations across every industry will need to reconsider their energy use and the environmental toll of their operations. The UN Environmental Programme established the Net-Zero Insurance Alliance (NZIA), a group of over 20 of the world’s leading insurers committed to moving their underwriting portfolios to net-zero emissions by 2050. Members include Zurich Insurance Group, Swiss Re, and AXA. North American insurers can join NZIA as part of their commitment to making climate-related improvements to their business.
In 2021, State Farm announced its internal strategy for reducing greenhouse gas emissions by 50% by 2030, expressing a commitment to supporting the well-being of current and future customers and employees. This goal is a continuation of initiatives they undertook in 2020, including establishing an Enterprise Environmental Sustainability Team. They also increased paperless billing among customers while working towards going paperless in the workplace, and have removed single-use plastic water bottles from offices around the country.
Improving transparency and accountability around the impact
Accenture research has found that 72% of executives across industries say that becoming a truly sustainable business is a top priority. However, further analysis revealed a disparity between executives and stakeholders—namely, employees—on the progress of sustainability initiatives. For example, while 68% of executives believe they have developed a robust sustainability plan, only 21% of employees say that this commitment goes beyond superficial optics.
These gaps in perception harm stakeholder trust. Our research also shows that just 40% of consumers believe that senior leaders “walk the talk” when it comes to sustainable initiatives. This research also showed that a stronger consensus on sustainability performance between executives and stakeholders was correlated with enhanced financial performance, as well. With the new generation of consumers prioritizing values-led companies, insurers are missing a key opportunity to attract new customers and increase customer loyalty if they ignore accountability and transparency around sustainability.
As Nina Jais mentioned in the recent Efma Accenture Webinar on Greening the Insurance Industry, the sustainability trend has been adopted a little later in Insurance than in other industries. I believe North American insurers can take a more active role in helping to combat climate change and protecting the environment.
Banks like Citi have really accelerated their sustainability in the last two years, managing and tracking their ESG goals and revising their operating structures to incentivize people to make these goals a priority. I see potential in following their lead.
Take a look at United Nations Global Compact – Accenture CEO Study on Sustainability to learn more about what’s needed to overcome the climate challenges we’re currently facing while continuing to grow in business.
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