Focusing on sustainability is an opportunity to demonstrate the value of insurance and strengthen public credibility, but it’s only achievable if businesses act with care and integrity in all other aspects of their operations.
When insurance CEOs ask world leaders where they need help, the answer is consistently health, climate change and financial inclusion, three topics on which the insurance industry has deep knowledge and capability.
Looking specifically at climate change, the CEO survey shows that, although it’s moving up the boardroom agenda within the insurance industry, CEOs still primarily see it as a reputational issue rather than as a strategic opportunity or a source of closer government engagement. There’s an opportunity for visionary insurance leaders to be distinctive.
Climate change is one of the most pressing issues facing the global economy and introduces specific risks for insurers, depending on the future emissions scenario which plays out. The Task Force on Climate-related Financial Disclosure (TCFD) framework links physical, liability and transition risks to governance, strategy, risk management, metrics and targets for climate-related risks and opportunities across various industries (FSB-TCFD, 2017).
According to AODP (Asset Owners Disclosure Project) these general climate risks affect insurers across the balance sheet:
Risks arising from the impact of physical climate events and trends on assets, firms and sectors, affecting profitability and cost of business, leading to impacts on financial assets and portfolios.
Pricing risks arising from changing risk profiles to insured assets and property (non-life), changing mortality profiles and demographic trends (life and health).
Claims risk arising from the confluence of unexpected extreme weather events. Strategic/market risks arising from changing market dynamics (e.g. uninsurability of property).
Risks arising from market, policy, technological and social changes, affecting profitability and cost of business of firms and sectors leading to impacts on financial assets and portfolios.
Strategic/market risks arising from a contraction in market demand in certain sectors (such as fossil fuels or marine transport).
Strategic/market risks arising from market trends, technological innovation and policy changes related to climate change (e.g. carbon pricing, energy efficiency regulations) affecting products and services demanded by consumers.
Litigation risks relating to the consideration of climate change in investment decision-making or inadequate disclosure of climate risks.
Liability risks arising from insurers becoming liable on the basis of insurance provided (e.g. tort or negligence claims) or from Directors & Officers policies.
Improve underwriting/risk analysis
Integrating ESG can reduce insurance loss and improve business outcomes for (re)insurers and their clients
New product development and product differentiation focused on sustainability can reach new markets
Sustainability strategies can attract new customers and employees, driving revenue growth and employee retention
Operating more efficiently often comes with sustainability benefits
ESG trends impact business operations; sustainability strategies can prepare insurers to be more resilient in the face of distribution
We help organisations to look at the bigger picture, by striking a balance between staying competitive, driving innovation and preserving our environment.