How insurance can lead the way in climate-conscious business
Which companies are making the biggest impact on climate change? The first industries that come to mind are most likely the obvious, high-profile players: those focused on clean energy, sustainable living, and waste reduction.
But there is an industry that is arguably less visible that has the potential to have a major impact on how businesses and consumers deal with environmental changes moving forward: insurance.
Not known for being particularly innovative, the insurance industry nonetheless has ample opportunity to take the lead in how businesses approach their ESG (Environmental, Social, Governance) frameworks and live up to standards now expected by customers. Beyond basic steps to decrease their own carbon footprint, insurance companies can also help other businesses to take the right step forward in building their own climate-friendly initiatives.
Why insurance companies matter when it comes to climate change
While many customers may only think of insurance companies only as providers of the required (or at the very least responsible) financial protection for their belongings and property, businesses also see insurance as being important to reduce risk and protect various aspects of a company’s operations, including external factors.
It’s clear that insurance can help minimize the cost of potential threats when it comes to the natural environment and the effects of climate change by providing policies that aim specifically at these risks.
An article by S&P Global cited that in 2021, France’s central bank found that claims related to natural disasters are expected to increase to 5x the current rate, causing a close to 200% surge in premiums by 2050.
While these are crucial concerns and indicate how insurance companies can reshape their policies, they can also play a much larger role. With their vast connections to policyholders and suppliers, as well as a generally large amount of available capital, insurance companies have the option of paving the way for how businesses can create a better path forward with the effects of climate change in mind.
What insurance companies can do about climate change
So what does that role entail? And perhaps more importantly, why would an insurance company want to take on that mantle? Let’s take a look.
Guide other businesses in climate preparedness:
Insurance companies are in the unique position of possessing extensive information about the risk and potential consequences of climate change. In this way, they can act as educators and guides for businesses they work with - from determining the best policies that will help them prepare for a more unpredictable climate future, to building incentives into policies to help push businesses towards reducing their emissions.
A study by PwC found that although 54% of insurance companies claim to have plans to improve their ESG standards and even become leaders in these developments, only 24% have actually taken steps to do so today.
Insurers can lead the way by re-evaluating and reforming policy offerings based on predictive research now. Because these processes can take time to adjust, they run the risk of falling behind more quickly moving changes - such as the repricing of assets at higher risk of the effects of climate change in the financial markets. Which leads us to…
Pursue sustainable investments:
Of course, this applies to all businesses, however, as mentioned previously, with the large amount of capital available to many of the main insurance companies, putting their investments towards a portfolio that supports businesses and solutions helping fight climate change can have a big impact globally.
Focusing on impact investments not only helps to support the initiatives to counter the effects of climate change, it also shows potential investors a commitment to a robust ESG framework.
Incidentally, working towards more sustainable investments is beneficial to insurance companies on the part of both assets and liabilities: they can minimize the risk to their investments caused by climate issues, which will put them in a stronger position to manage the risk that comes with underwriting in a climate-uncertain future.
Set the example:
Putting effort into rebalancing portfolios is an important part of the steps toward becoming a company that not only takes the steps to battle climate change, but leads the way. Insurance companies, like other businesses, also need to look inward at their corporate footprint and consider what can be done about their own contribution to climate change.
There are many ways a business can work to improve their emissions. From the well-known methods such as moving towards a paperless office, to employees carpooling or taking public transportation, to using renewable energy sources and reducing waste.
While it might seem like a lot of work to implement all of the above, there are some solutions that can help contribute all around. For example, switching to digital workflows and electronic signatures helps to reduce paper usage and reduce the cost of business document transportation emissions. In addition, it improves security for customers and reduces risk for the company.
Moving towards a more sustainable operation does more than just makes a company look good. A study by pwc found that 80% of investors around the world believe that how a company has an impact on investment decision-making. Likewise, 76% of customers said that a company’s commitment to their ESG framework has a significant impact on whether they will continue to be customers.
We all know how important climate considerations are for our planet. Insurance companies are perhaps surprisingly well-positioned to be a helpful force in guiding businesses towards a more balanced, risk-aware future.