This March, The Fintech Times is turning its focus towards insurtech, shedding light on the innovative advancements and sustainable initiatives within the insurance sector.
As the world grapples with the increasingly urgent need to address climate change, industries across the board are being called upon to play their part in mitigating its effects. Among these, the insurance industry stands as a critical player uniquely positioned to drive sustainable initiatives and proactively manage climate-related risks.
To shed light on the ways in which the insurance industry can take the lead in this endeavour, we’ve gathered insights from industry experts into the strategies, policies and innovations that can empower insurers to navigate the challenges posed by climate change while advancing sustainability goals.
‘Decarbonise portfolios, innovate insurance solutions’
The insurance industry has a critical role to play in the fight against climate change, says Gus Majed, CEO and founder of insurance group Paratus, pointing to initiatives such as the Net-Zero Insurance Alliance (NZIA) aimed at decarbonising underwriting portfolios.
“Launched in 2012, the UN Environment Programme’s Principles for Sustainable Insurance Initiative (PSI) acts as a framework for the industry to tackle ESG risks and opportunities. One of the most important programmes to come out of the PSI is the Net-Zero Insurance Alliance (NZIA) which along with its partners is focused on decarbonising insurance and reinsurance underwriting portfolios.
“There are currently 535 corporates committed to it, however, the conflict between the NZIA commitment and the need to produce electricity at an affordable price, has resulted in members’ exits over the last couple of years.
“This power industry challenge is also tied to the issues around renewable power generation and how infrastructure owners optimise their financing to attract institutional capital from banks and infrastructure funds. The Paratus Group’s purpose is to facilitate decarbonisation by accelerating the transition to renewable energy and sustainable fuels. This is the exact industry challenge that created the opportunity for us to innovate and try solving the problem through our energy price risk insurance products, thereby
allowing the economic gains to pass directly to the insured.
“Our developed renewable power price protection policy (pending regulatory approval by the Guernsey Financial Services Commission) mitigates balance-sheet price risk and thereby enables renewable power and sustainable fuels to be more economically competitive, whilst concomitantly reallocating more capital to the energy transition. So, it supports both the renewable power generation sector and those with a renewable power transition programme.”
‘Better predict and manage risks’
Heikki Vesanto, manager of GIS data science in the insurance division at LexisNexis Risk Solutions UK & Ireland, outlines the urgency of addressing climate change-induced flooding in the UK.
“The current annual £700million cost of flood damage to the UK could increase by more than a fifth in today’s terms over the next century due to climate change, unless all international pledges to reduce carbon emissions are met.
“A stark fact, yet with the UK climate already moving towards drier summers, with wetter, warmer winters the urgent need for better planning, increased flood resilience in buildings and use of appropriate geospatial data to mitigate risk, is pressing. In direct response, the data insurance providers need to better predict and manage risk is growing – from basement indicators to ‘live’ flood alerts, geospatial data intelligence for insurance is expanding at a pace.
“The use of targeted geospatial data at point of quote through data enrichment or in map form through geospatial data visualisation tools such as LexisNexis® Map View, is helping to identify customers and properties at present or future risk – from flood to subsidence to windstorm activity. It allows insurance providers and their customers to assess the risks of today and help prepare them for those of the future.”
‘Innovate with climate-conscious actions’
Ryan Cox, senior director and head of AI at Synechron, a global digital transformation consulting firm, also endorses the critical role of data in insurance.
He says: “Insurance companies play a pivotal role in combatting climate change. Leveraging weather data and predictive analytics, they empower individuals and businesses to reduce their climate impact. By offering specialised insurance for natural disasters and promoting green investments, such as aligning portfolios with environmental objectives, they redirect capital towards renewable energy and green bonds.
The insurance industry also creates new insurance options for climate risks and collaborates with stakeholders to advocate for eco-friendly policies. By integrating climate risk into their core operations, insurance companies make tangible contributions to sustainable initiatives.”
‘Reduce electric car insurance costs’
John Ellmore, editor and spokesperson for Electric Car Guide, has stressed the need for insurance companies to address the high cost of electric car insurance, which acts as a deterrent for UK drivers considering the switch to electric vehicles.
“The current cost of electric car insurance is too high and it’s becoming a deterrent to UK drivers looking to switch to electric.
“Insurance companies must step up their efforts to address this challenge. By developing tailored insurance products that cater specifically to the unique needs of electric cars (such as specialised coverage for battery life, electric motor issues, and advanced driver-assistance systems) they can start to reduce overall costs for consumers.
“Insurance companies must also be agile in responding to emerging data about the safety of electric cars. As evidence mounts showing that EVs can be safer than traditional vehicles, insurers must adjust their risk assessments and pricing models accordingly.”
‘Incentivise sustainability, invest in green’
Neeraj Gupta, CEO at insurance marketplace Policybazaar UAE, advocates for insurers to incentivise sustainable behaviours and invest in green projects to address climate-related risks.
“The insurance industry can play a pivotal role in advancing sustainable initiatives and addressing climate-related risks through several strategies. Firstly, insurers can incentivise policyholders to adopt environmentally friendly practices by offering reduced premiums for sustainable behaviours such as energy efficiency, EV vehicles and more.
“Additionally, insurers can collaborate with government agencies to develop innovative insurance products tailored to climate resilience, covering risks associated with extreme weather events and rising sea levels.
“Moreover, the industry can invest in green bonds and sustainable projects, fostering a transition to a low-carbon economy. Embracing advanced technologies, such as satellite-based risk modelling, can enhance risk assessment and support more accurate underwriting in the face of climate change.
“Insurance companies can also engage in public awareness campaigns, educating businesses and individuals on climate-related risks and mitigation measures. Lastly, by actively participating in industry forums and supporting regulatory frameworks that encourage sustainability, insurers in the UAE can contribute significantly to broader environmental and climate resilience goals.”
‘Integrate sustainability measures’
Luca Russignan, head of insurance at Capgemini Research Institute for Financial Services, suggests a pivotal shift towards integrating sustainability within insurance operations. He highlights the importance of integrating environmental, social, and governance (ESG) considerations into corporate strategies.
“As climate change escalates loss events, property and casualty (P&C) insurers have an opportunity to champion sustainable resilience solutions that bolster financials results, ensure trust, and tackle growing insurability concerns.
“Some insurers are already restricting investments and coverage of unsustainable companies. Although, exclusion is not enough. The industry needs to play a bigger role in enabling the transition to a more sustainable economy. The urgency is significantly rising, with 56 per cent of senior executives surveyed in 2023 expressing concern about climate events, up from 44 per cent in 2022 as per a recent Capgemini report.
“Forward-thinking insurers are integrating Environmental, Social, and Governance (ESG) resiliency into corporate sustainability strategies. This requires re-evaluating the business model to balance risk management and risk prevention, while partnering with clients, local governments and regulators to develop diversified and sustainable risk transfer solutions.
“Essentially, climate resilience demand insurers to fully embed sustainability within their strategic and operational DNA to deliver innovative solutions, tackle insurability concerns, and remain profitable over the long term. Yet, according to the Capgemini World Property and Casualty Insurance Report 2022, only eight per cent of insurers lead on this agenda with superior governance, advanced data and insights, preventative risk services, and ESG factors embedded across investments and underwriting decisions.
“As losses accelerate, it is critical that insurers deploy their risk management expertise to help the industry and society overall to navigate these challenges.”
