The HOW: Global climate change is happening; how can the insurance industry help prevent this disaster?


The HOW: Global climate change is happening; how can the insurance industry help prevent this disaster?

The second in a series of articles on the impact climate change is having on the insurance industry, and the impact the insurance industry can have on climate change. Next up, how…

You’ve hopefully heard, and been convinced by, why it is in the insurance industry’s best interest to play a positive part in the war on climate change.

Now it’s time to understand exactly what tangible measures incumbents and insurtechs alike can be (and are!) doing...

Captain America has his shield, Thor has his hammer and the Insurance industry has… technology?

We no longer have Iron Man to help us out (#Spoiler), however, I believe that the insurance industry can learn a lot from him. He was a superhero whose power came from his ability to make the most of the technology available to him, to push the boundaries of the traditional and to embrace innovative digital solutions. Now it’s time to learn from companies already putting tangible solutions to climate change into practice…

Many changes are afoot in the private sector, and global warming is just one of the many factors threatening business models far and wide. There is a pressing need to develop the ability to withstand significant changes in the way that things are done, at the impressive speed at which they may occur. A fitting example relevant to the Insurance industry is the shift to a lower-carbon economy. I feel strongly that the key to developing this resilience lies in the willingness to embrace the digital.

The Insurance Industry is beginning (slowly but surely!) to identify the potential of technology to improve the quality of the services they provide. By making the decision to ‘go digital’, Insurance companies can increase their access to timely and accurate and data, about the customer, the insured risk object, and the other influencing factors. Climate change is a significant influencing factor, and therefore an important site for increased insight through effective technological mechanisms.

Technology is the Insurance industry’s greatest superpower.

Insurance superheroes leading the way…

A recent study by the Geneva Association suggested that the Insurance (and Reinsurance) industries are, on the whole, already well on board with trying to do their part to help prevent global warming, and I am pleased to say that in my research I have also found this to be true. I have been thrilled and enthused to find out just how much is already being done, and to learn about some of the Insurance ‘superheroes’ already taking up their positions in the front line. There is, however, more that can and should be done, and some are more accepting of the responsibility facing insurance to act against climate change than others.

Here is my best attempt at a general review of what is currently being done and what could be done better…

(Disclaimer - I do not claim to have all the answers or to present a clear path forward, I only wish to prompt you to reflect on your current progress on these fronts, to challenge complacent thought and to get your creative juices flowing!)

- Watching the carbon footprint

This may seem like an obvious way to make a contribution to the climate cause, but it is still worth mentioning, given consider the size of the Insurance sector. Despite being a comparatively low-energy industry, Insurance companies still have a responsibility to compensate for their carbon emissions. If all Insurance companies achieved a zero output of carbon emissions, this would make a significant contribution to capping the temperature rising at 1.5°C by 2030.

A great example of how small changes can make a big impact is provided by Aviva, who managed to cut their direct annual CO2e emissions by 9% (7,200 tonnes CO2e saved) simply by putting more thought into how they process ‘escape of water’ claims. In fact, I believe that Aviva may be to Insurance what Captain America is to the Avengers: a leader where climate change is concerned, and therefore deserves special mention. Aviva set a fantastic example when they became the first carbon neutral international Insurance company in 2006.

It is great to see that so many companies are following in Aviva’s footsteps… Other Insurance companies that have achieved carbon-neutral status include QBE, Zurich and Allianz, and many more companies are well on the way to achieving this aim.

- The power of ‘paperless-ness’

The presence of trees is of course imperative to cooling the world’s warming planet, and yet paper-heavy processes are still often the ‘norm’ where Insurance in concerned. At a recent TINtech conference, I was privileged to listen to the great EY team present the revealing results of their recent research into ‘paperless-ness’. They found that General Insurance had the lowest percentage of paperless customers, at just 18%, compared to the other three financial sectors in the survey. They also found that a stunning one billion pieces of paper were distributed to customers by Wealth, Insurance and Pensions firms in 2017. Given that one billion pieces of paper equates to roughly 460,000 trees, and only around 850,000 trees were planted in the UK in 2016, this is quite concerning! >>

AXA have set a good example on this front, by partnering with The Woodland Trust in order to plant enough trees to offset their paper usage – more than 56 football pitches worth in fact! >> 

- General Insurance – Is it time to review the speed and efficiency of your claims processes?

Waste disposal in the aftermath of flooding and fires is an area where I believe there to be much potential for improvement, especially considering only some of the household items requiring disposal are currently recyclable. A quicker response to the growing number of reports of flooded houses and house fires would reduce the amount of damage done to the property and the belongings in the first place, thus increasing the amount of restorable items, and reducing the amount of waste. Not to mention, a speedier claims process is likely to mean an increase in customer satisfaction, yet another argument for the digitalisation of your claims processes! In the wise words of Lemonade: ‘insurance can either add insult to injury (paperwork, foot dragging), or it can provide relief when it’s needed most’. >> 

Zasti, an exciting new name on the Insurance scene, have taken this one step further by exploring the potential for Artificial Intelligence to better inform insurance processes. They have developed Deep Learning algorithms to provide predictive and diagnostic solutions, including improving the quality and speed of fire detection and classification. It would be fantastic to see more companies exploring innovative solutions to the waste issues facing our planet.

- Annual reporting and increased transparency

The Task Force on Climate Related Financial Disclosures (TFCD), on behalf of the Financial Stability Board (FSB) published recommendations for ‘consistent, comparable, reliable, clear and efficient climate-related financial disclosures by companies’ in 2017 (read the original report here), and have since reviewed willingness across numerous industries, Insurance included, to embrace these ideals in a Status Report. Their findings were overwhelmingly encouraging, as they confirm that there is a growing trend to see sustainability included in the annual reporting and Accounts and Business Priority Statements across a wide variety of business genres. There is, however, still much room for improvement, as I have found that many Insurance companies have opted to only briefly mention climate change, rather than allocate it status within their reports.

Here are some examples of Insurance Company annual reports in which sustainability aims have an impressive presence:

§ QBE 

§ Aviva 

§ Chubb 

- Promote customer awareness of climate change issues and help them to make the right decisions

Here are some examples:

§ Aviva Poland has installed air monitors in local communities to enable their customers to access up to date information about air pollution levels on their smartphones.

§ Aviva are now providing energy-efficient replacement goods (such as washing machines and fridges) in the vast majority of cases, and have developed a ‘green laptop parts’ replacement system.

§ Churchill and Hastings Direct are examples of companies that promote electric cars as a positive solution to climate change on their websites, through outlining the advantages of owning an electric car, giving tips on finding the best insurance for electric cars and providing links to websites with more information/related services.

§ Some car insurance companies are now offering up to a 5% discount on premiums for people insuring their electric cars, and a few others will donate to a charity that supports the environment on the customer’s behalf when they take out a policy on their electric vehicle.

§ Lemonade’s intriguing new Insurance business model involving a ‘Give Back’ scheme, whilst not yet contributing toward climate related causes, certainly holds the potential for this in years to come. Their aim to change a necessary evil into a social purpose certainly aligns with the thinking that has gone into this article and is worth taking a look at! >> 

§ Adjusting the products that you sell and the premiums that are attached can play an important part in shaping societal preferences. A key example of this type of action is QBE’s valiant aim to phase out all direct insurance services to thermal coal customers by 2030. >> 

§ TH March have just announced an incredible initiative of sending all their employees across the country a reusable metal water bottle. Making not only hundreds of staff more aware, but also more likely to cut down on single use plastic - they are also challenging other companies to be inspired by this reusable water bottle scheme.

- The power of investing and divesting…

“The biggest thing the industry can do is to use its sizeable investment portfolios to move funding away from things that are polluting the planet and into greener initiatives” – Huw Evans, ABI.

Here are some examples and some general ideas to get you thinking…

§ Aviva are on track to save 100,000 tonnes of CO2 annually as a result of their investments in lower carbon infrastructure.

§ QBE have developed a ‘Premiums4Good’ scheme, which gives some customers the opportunity to direct up to 25% of their premiums into socially responsible and impact investment projects, many of which are environmentally focused, such as water conservation, waste management and renewable energy.

§ There may also be power in designing insurance products that support low-carbon green energy projects by making them more attractive to other external investors.

§ Other companies, such as Allianz and AXA are making the decision to divest in carbon-intensive sectors, which can arguably be just as powerful. (Given that over 40% of global coal power plants are currently running at a loss, this is looking like the sensible thing to do from a returns perspective anyway, according to a recent study by CarbonTracker!).

§ Lemonade have made a strong statement that they will not even consider investing in coal, as they believe that “Insurance companies shouldn't fund the very harms they’re meant to protect against” https://www.lemonade.com/blog/divest_coal/ . Within this convincing call to arms, they showcase this revealing statistic:

When you decide not to be afraid, you can find friends in super unexpected places – Ms. Marvel.

I was not hard pressed to locate a variety of Insurance related think-tanks and professional communities that are already dedicating time, energy and funds to investigating and mitigating the threats posed by climate change, for example:

§ ClimateWise (Take a gander at their open-source model called the ClimateWise Transition Risk Framework, which looks at quantifying risks and opportunities within infrastructure investment in the context of the shift to a lower carbon economy)

§ World Benchmarking Alliance

§ Association of British Insurers (Their nicely condensed summary of the effects of climate change on insurance is well worth a read here)

§ World Economic Forum Climate Initiative

§ UNEP Finance Initiative Principles for Sustainable Insurance (Check out their Industry guide to managing ESG risks here – an excellent framework full of practical advice for embedding sustainability aims into the heart of your business)

§ Certified Sustainable Insurance Partners (CSIP)

§ Investor Group on Climate Change (IGCC)

§ UN Principles for Responsible Investment

There are many more! With all of that research, guidance and information already available to insurance companies, there really is no excuse for not getting involved and making changes for the better.

Insurance Companies Assemble

What is your company doing to help the climate cause? Is sustainability integrated into the decision making processes at all levels within your institution? If you have already developed an effective strategy for promoting sustainability through your business, have you taken steps to share this strategy far and wide? Our planet is too far too precious to allow us to be precious over our ideas… let’s start a sharing culture on this topic, where best practise is celebrated, imitation is encouraged, and discussion is aplenty, for it is only through effective collaboration within the industry that real change will take effect.

It is time to put on your cloaks, squeeze into your lycra and show the world, not only that you can help, but that you will help.

In the words of Uncle Ben: With great power comes great responsibility - It is time to step up do the necessary thing, the smart thing and the right thing. The first step is joining the debate...


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