How the insurance industry can lead the green transition
Climate change poses challenges for the insurance industry, affecting disasters, coverage, and stakeholder expectations. How can the insurance industry lead the green transition? We couldn't think of a better person to answer this question than our co-founder, Espen. With nearly two decades of experience in the insurance sector, Espen offers a unique perspective on the path forward.
Espen Husstad
To shape a sustainable future, insurers must manage their ESG impact and influence stakeholders. This involves leveraging core functions: underwriting, investments, and claims handling.
Underwriting: Who, What, and How to Insure?
Amidst the ongoing debate about whether insurance companies should "vote with their feet" and refrain from insuring certain industries with significant climate footprints, underwriting takes the stage as a potent tool for insurers to drive sustainability through:
Utilizing ESG criteria to select clients or industries, mitigating exposure to high-carbon or low-ESG sectors. Some insurers cease coverage for coal or oil projects, while others incentivize sustainability improvements.
Crafting policies that cater to eco-conscious customers, such as electric vehicles or green building coverage. Premiums can reflect environmental impact, encouraging eco-friendly choices.
Applying circular economy principles, endorsing repairs and reusability to minimize waste and maximize resource efficiency.
Investing: How to Allocate Capital for Sustainability?
Investing is another key lever for insurers to support sustainability by:
Incorporating ESG criteria to evaluate the performance and potential of their investments, as well as to identify and manage ESG risks and opportunities. Insurers can also use ESG criteria to screen out or divest from investments that have a negative impact on sustainability (e.g. excluding tobacco companies or weapons manufacturers from their portfolios). At the same time, focus on investments in green bonds, renewable energy projects, or social enterprises.
Insurers can encourage their invested companies to disclose their ESG performance and risks, adopt more sustainable practices and policies, or align their strategies with the Paris Agreement.
Use various frameworks and standards to measure and disclose their ESG indicators, such as the Principles for Responsible Investment (PRI), the Task Force on Climate-related Financial Disclosures (TCFD), or the EU Taxonomy Regulation, CSRD. Reporting on sustainability can help insurers enhance their transparency, accountability, and reputation among their stakeholders.
Claims Handling: How to Manage Claims in a Sustainable Way?
Addressing the footprint from claims handling processes is essential for insurers to support sustainability:
Reducing the carbon footprint of claims operations. Insurers play a pivotal role in driving the automotive sector to produce electric vehicles using greener steel, environmentally friendly batteries, and adopting circular repair practices.
Support their customers in recovering from the increasing and intensifying natural disasters caused by climate change, such as floods, droughts, heatwaves, storms, or wildfires. Insurers can also help their customers rebuild their homes or businesses in a more climate-resilient and energy-efficient way, by using green materials, technologies, or standards.
Measure and monitor carbon footprint in claims handling processes. Understanding carbon hotspots will help insurers to define more accurate emissions reduction targets.
The insurance industry is at the forefront of the green transition. By leveraging their core business activities, insurers can not only manage their own ESG risks and impacts, but also influence the decisions of their stakeholders. Reach out to us to learn more on how insurers can contribute to a more sustainable future.