Understanding CO2 emissions in the insurance value chain

For property and casualty (P&C) insurance companies, CO2 emissions stem from four different sources.

  1. The insurer’s own operations.

The emissions from the insurer’s own operations arise from vehicles owned by the insurer, energy consumption in facilities, business travel, employee commuting, waste generated in operations, and purchased IT equipment and services. These emissions are not unique for the insurance industry and are well understood and disclosed by most insurance companies.   

  1. Financed emissions. 

The financed emissions are indirect emissions linked to the insurer’s investment portfolio, which often is sizable due to the nature of the insurance business. These emissions typically account for over half of all emissions of an insurance company. Again, these emissions are not unique for the insurance industry, and most asset managers and institutional investors have already for quite some time been occupied with reducing the indirect emissions that stem from their asset allocations. 

  1. Claims emissions (or Claims Carbon as we call them).

These are the indirect emissions that stem  from all activities and materials needed for settling an insurance claim. For example, in a motor insurance claim, emissions linked to sourcing and usage of new spare parts contribute significantly to the carbon footprint of repairing a car. Boston Consulting Group (BCG) has estimated  that emissions from claims management activities are linked to 35-40% of all insurance emissions.

  1. Insurance-associated emissions.

These indirect emissions are associated with whom and what is being insured. For commercial insurance customers, these emissions can be rather high e.g. for a mining company. For personal motor insurance portfolios, the focus is on the tailpipe emissions of the insured vehicles. The motivation behind calculating and accounting for insurance-associated emissions  is that the insurer is regarded  as an enabler for these activities and their emissions to take place.

How do insurance companies focus on reducing their emissions?

In terms of sustainability, up to now we have frequently excluded our actual insurance business. We on the Management Board think this is a mistake. Sustainability starts with us deciding to conserve resources and repair, rather than replace at high cost. Clearly, repairs generally leave a significantly smaller carbon footprint than a new procurement.” 

Oliver Bäte, the CEO of Allianz

The above quote from Oliver Bäte, CEO of Allianz at their Annual General Meeting on May 4th, 2023, shows that emissions from claims settlement are becoming increasingly important.

Tryg, a Scandinavian insurance company, has given sustainable claims handling the highest importance on their materiality matrix, as they handle 1.5 million claims each year. By preventing claims and introducing emission reduction measures, such as repairing instead of replacing and securing sustainable suppliers, Tryg aims to reduce 20,000 – 25,000 tons of CO2e by 2024.

Claims carbon is also an important focus area for Gjensidige Forsikring, which reported  34,000 tons of CO2e arising from claims settlement processes in 2022. In comparison, business travel accounted for only 1300 tons of CO2e emissions. 

We, at Claims Carbon, collaborate with insurance companies to reduce greenhouse gas emissions throughout the insurance value chain. Reach out to us if you need help with analyzing your current baseline and setting science-based reduction targets. Let’s decarbonize insurance together!