2021 The year of sustainability in insurance innovation?
Sustainability, climate change and social inequality have been the topics coming to the surface more frequently as societies start to plan for their recovery from the COVID-19 crisis. Since the Paris Agreement in 2016, organizations like the UN, World Economic Forum and local governments have started initiatives to encourage sustainable economic development. Although good intentions have been expressed, and followed up with legislation in some countries, the actions taken to date are not sufficient. The pandemic has shown us that big, bold actions are possible when the threat is becoming more imminent and perhaps some lessons have been learned on how to tackle an issue of incredible size that seems overwhelming at first. As recovery plans are being made for the post-COVID-19 world, green agendas are getting more airtime as leaders and activists try to ensure that we don’t cross the point of no return in this climate emergency. Does this mean that insurance innovation should join the sustainability agenda?
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We believe that insurance is a force for good in society and, as such, it has a big role to play in the process of creating a more sustainable world in the coming years. There are a few reasons why insurance is uniquely placed to do so.
- Reach – insurance is a huge industry with a very significant reach across the world both into customers through personal lines as well as to businesses. Of course, this holds less true in some of the developing countries. However, we believe that through products like microinsurance, which are part of creating more financial equality in the world, this will change over time as well.
- Incentive – insurers have the power to influence the behaviors of their policyholders. Incentives like lower premiums for safe drivers enforced by telematics can be an example. There are also initiatives to support sustainability that are already happening, like the one by Lloyd’s Market, who is planning to phase out underwriting fossil fuels from 2022.
- Investment portfolio – insurance institutions hold a huge investment capital, and deciding on what these monies are invested in matters. There are already interesting examples of movement here. The UN has created the Net-Zero Asset Owner Alliance which consists of many key global insurers and reinsurers who made a public commitment to transitioning investment portfolios to net-zero greenhouse gas emissions by 2050.
- Direct impact on the ability to insure – not taking action on causes of climate change will in time make many risks uninsurable. As extreme weather events start to become the norm, insurers and reinsurers will be forced to stop writing specific business thus leaving people, properties and businesses vulnerable. On the flip side, insurers can have a positive impact on their clients in working towards preventing losses from and encouraging more sustainable behavior
We know insurance can have a positive impact on sustainable development in many different ways, and we are glad to see more projects happening that look at sustainability. This summer, we noted that almost 40% of the (re)insurer client projects we were working on at the time were focusing on ESG topics, using our innovation 123 Framework™ to find solutions to these issues. Even though some of the sustainable problem statements might be bigger or more complex than some of the more technical innovations we approach on a daily basis, they are still questions that, collectively as an industry, we can find answers to.
This surge in interest from insurers and reinsurers in solving sustainability issues, as well as our findings regarding consumers changing their behavior, preferences and engaging more with sustainability, has prompted us to reserve one of our Insurance Innovation Big Bets for 2021 for ESG and sustainability. These Big Bets are key themes that we saw emerging in 2020, and believe will become some of the key drivers of insurance innovation in 2021. These themes are detailed in our research of 500+ insurance innovations that we share in the Insurance Idea Pulse 2021.
As we start the New Year with the hope that we can soon leave some of the healthcare, mental health, and economic consequences of COVID-19 behind us, and with further proof that we have to treat sustainability issues seriously, we think there is no better time than now to face these challenges head-on.
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