How insurers can get proactive about climate change

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The recent UN Climate Change Conference (COP26) in Glasgow and the PSI COP26 series on sustainable insurance got me thinking about the potential of insurers to mitigate climate change. As industry representatives, we’ve talked quite a bit about how risk assessments associated with extreme weather events such as polar vortices and heat domes have a big impact on losses. The Accenture study also showed how important it is for today’s carriers to demonstrate commitment to important causes, as most millennials and Gen Z consumers prioritize companies that take a stand on issues that matter to them.

The fight against climate change is not only about environmental sustainability. Insurance leaders who are actively involved in climate-related initiatives and have proven themselves as part of the solution will stand out in the market. We found that Environment, Social Media and Governance (ESG) trends are projected to generate $206 billion in revenue over the next five years. As my colleague Kenneth Saldana put it, “sustainable [has] has evolved from altruism to a new business imperative.”

Maintaining accountability and transparency along the way will be critical to both internal support and customer confidence. In this blog, I wanted to explore some of the ways insurers are stepping up to lead the fight against climate change.

Focus on innovative products that solve climate problems

I believe that every insurer has a role to play in changing our approach to sustainability, both inside and outside the company. One way insurers can meet customer demand for sustainable offerings and take action to strengthen sustainable business practices is by providing products and services that directly or indirectly have a positive impact on the environment.

My colleagues Nina Jais and Ravi Malhotra see an opportunity for insurers to offer new products such as demolition, refurbishment and recycling. They may also offer discounted premiums to clients who choose these options for assets they insure, such as cars or homes.

Swiss Re has recently developed a cutting-edge product that protects the coral reefs off the coast of the Yucatan Peninsula, thus protecting nature. The company has teamed up with The Nature Conservancy and Mexico’s regional authorities to protect this natural asset, the damage to which will cause serious economic damage to the region.

Finally, insurers can also act as indirect catalysts for change in other areas of the business. One way is to incentivize sustainable practice through ESG risk premiums. When it comes to underwriting, focusing your portfolio on sustainable companies can also help change the direction of environmental impact across industries.

The pursuit of zero emissions within the organization

As we move towards a climate-conscious future, organizations across all industries will need to rethink their energy use and the environmental impact of their operations. The United Nations Environment Program has established the Net-Zero Insurance Alliance (NZIA), a group of more than 20 of the world’s leading insurers, who have committed to achieving portfolio zero by 2050. Members include Zurich Insurance Group, Swiss Re and AXA. . North American insurers can join NZIA as part of their commitment to improve their climate-related business.

In 2021, State Farm announced its internal strategy to reduce greenhouse gas emissions by 50% by 2030, with a commitment to supporting the well-being of current and future customers and employees. This goal builds on initiatives they have taken in 2020, including the creation of a corporate environmental sustainability team. They also increased paperless billing among customers, pushing for a paperless workplace, and removed single-use plastic water bottles from offices across the country.

Increasing transparency and accountability for impact

An Accenture study found that 72% of executives across industries consider building a truly resilient business their top priority. However, further analysis revealed a mismatch between managers and stakeholders, namely employees, regarding the progress of sustainability initiatives. For example, while 68% of executives believe they have a solid sustainability plan in place, only 21% of employees say commitment goes beyond superficial optics.

These gaps in perception undermine stakeholder confidence. Our research also shows that only 40% of consumers believe that senior management “talks” when it comes to sustainability initiatives. This study also showed that stronger consensus on sustainability performance among executives and stakeholders is also correlated with improved financial performance. As a new generation of consumers favor value-driven companies, insurers are missing out on a key opportunity to attract new customers and increase customer loyalty if they ignore sustainability accountability and transparency.

As Nina Jais noted at a recent Efma Accenture webinar on greening the insurance industry, the sustainability trend was adopted in insurance a little later than in other industries. I believe North American insurers can play a more active role in fighting climate change and protecting the environment.

Banks like Citi have really accelerated their resilience over the past two years by managing and tracking their ESG goals and reviewing their operating structures to encourage people to prioritize those goals. I see the potential in following their example.

Take a look at the United Nations Global Compact – Accenture CEO Sustainability Study to learn more about what it takes to overcome the climate challenges we currently face while continuing to grow as a business.

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