Insurance companies are well positioned to contribute in the global combat against climate change and it is encouraging to see that the insurance exposure – which stands for a large portion of the total emissions of an insurer – is receiving more and more attention.
The global property and casualty (P&C) insurance industry is a massive 1.6 trillion dollar industry and a key part of the financial system offering financial protection and risk mitigation to individuals and businesses. As the recently established Net-Zero Insurance Alliance (NZIA) points out, the insurance… Read More »The carbon footprint profile of a P&C insurer
Given the challenges the world is facing in reaching net zero, it’s great to see that many large insurance companies are showing leadership and setting strong examples by disclosing ambitious climate goals.
Forerunners will be in a unique position to meet the needs of stakeholders and attract new customers through public disclosure of emissions, progress toward climate targets, and demonstration of environmental stewardship.
So far, most of the insurance industry’s work around climate and greenhouse gas emissions has focused on direct operations and investment portfolios. Next, insurers should establish baselines for their underwriting portfolios and supply chains, in which claims settlement plays a crucial role.
The insured emissions and the claims carbon footprint complement each other fittingly. The insured emissions are relevant for commercial insurance and it’s mainly a question of disclosing which type of companies and industries “you are willing to do business with”. The claims carbon footprint, on the other hand, works across both retail and commercial insurance and only focuses on the actual footprint of the insurance product itself.
ESG and sustainability in general is a broad topic covering much more than just climate related questions. We would argue, however, that of all the potential sustainability related ambitions, combating climate change must be the most important one. Our vision is that the global insurance industry will reach net zero emissions in 2040. Therefore, while we think it’s important and commendable that insurers adopt the Principles for Sustainable Insurance, we also recommend that insurers seek out and implement additional frameworks that have a more climate specific agenda.
Preparations for the the next UN Climate Change Conference (COP26) in Glasgow later this year are in full motion. The trend has been that investment portfolio managers are expected to not only report on the carbon footprint of their assets, but also set clear emission reduction targets. Similarly, the next trend could be that we see a surge for insurers to report on the emissions associated with the claims that are being handled and paid, and that relevant actions will be defined and followed-up on.
Most insurers know that utilizing the pricing mechanism is key to powerful and quick changes, and the use of carbon pricing in all its shapes and forms is the key lever being utilized across geographies and sectors to reach net zero. We are convinced that there are material and growing consumer segments who would embrace this net zero value proposition. Also, there is always the possibility that governments will impose carbon taxes on motor insurance.
There is an obvious opportunity in settling large claims in a carbon efficient manner, focusing on using low emission materials and technology. Reinsurers could play an effective role in motivating their customers, the insurers who actually settle these claims, to reduce carbon footprints.
Motor insurers, according to our estimates, contribute ~15% of the revenues of the global automotive industry, through repairs and cash settlements of insurance losses. Under the assumption of proportionality, this indicates that ~0.5% of all global carbon footprints stem from motor vehicle repairs and cash settlements from insurers.