How P&C insurers can protect and power our journey to a more sustainable world - Capgemini
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
S U S TA I N A B L E INSURANCE How P&C insurers can protect and power our journey to a more sustainable world
FOREWORD
Natural disasters and behemoth cold temperatures caused the already material environmental impacts on
weather events have become weak electric grid to fail. The inability property, insurers are on the hook to
increasingly common and detrimental to keep up with energy demands to spend billions of dollars on replacing
to society. However, for many years, provide heat and electricity across goods and repairing damage after
political leaders, corporate executives, the entire state wreaked havoc on claims are made.
and citizens around the globe were individuals and businesses. By mid-
slow to realize the true impacts and March 2021, damage estimates were Insurers undeniably carry the financial
scale of climate change as its effects as high as $30 billion USD.2 This is burden of climate change-induced
took their toll. Over the last 20 years, one of many recent examples of how natural disasters on a more significant
we have seen an overwhelming climate change is rapidly increasing the level compared to other financial
increase of droughts in India, extreme amount of risk we’re experiencing. services sectors. However, they also sit
heat across continental Europe, in a place of power and authority and
deadly tsunamis and earthquakes in Property and casualty (P&C) insurers have the ability to embed sustainability
Japan, raging wildfires in Australia both underwrite this damage and have criteria on the replacement of products
and the Western United States, fierce a role to play in mitigating the impact supplied or repair work.
cyclones in Africa, and treacherous of climate change. Bulge bracket
hurricanes across the Caribbean and insurers are equipped with name Insurance companies and their evolving
the Southeastern United States. brand recognition, financial capital, policy offerings can contribute to
expert resources, vast stores of data, both the way people and communities
By the end of 2020, weather disaster and a wide breadth of influence. This recover from climate-related disaster
damages destroyed hundreds of puts them in a unique position to and the overall climate resiliency of
thousands of homes, took thousands impact sustainability trends, influence a society. They are also positioned
of lives, and cost the world over $95 how individuals behave, and shape to meet the changing demands of
billion USD.1 As recently as February how businesses consume products. consumers as sustainable practices and
2021, the American state of Texas’ Those who are affected by increased climate change prevention become
freezing temperatures paralyzed risk and natural disasters depend on key differentiators in an increasingly
energy sources, which left over four P&C insurance products to protect competitive insurance landscape.
million Texans without power for them from loss and financial peril.
days. The unexpected and extremely For example, when considering the
Insurance models
are rapidly changing
in response to the
emerging risks. It
is important for
insurers to transform
themselves and
proactively manage
the emerging risk
scenario, rather than
just adapt to it.”
Youngran Kim
Region CIO, Allianz Asia Pacific
—02
Insurers sit between their customers represents the difference between catastrophes and disasters than any
and the financial damage of climate economic and insured losses and the other financial services players. Their
risks, placing them in an advantageous cost to society in the wake of natural heavy investment reserves and product
position to help drive climate resiliency. disasters. In 2019, more than 400 portfolios must consider the impact
They can encourage the proactive damaging weather events culminated of sustainability across experience,
adoption of sustainable practices and in over $232 billion USD in economic innovation, and operations, while
products. They can refine underwriting losses globally and only $71 billion also understanding how they instill
assumptions to account for changes USD was insured.3 Insurers should resiliency and address the protection
in weather and associated risk with start to partner and collaboratively gap with new policies and products.
certain products and geographies, in form strategies and new products to Incorporating sustainability into
addition to offering incentives that address this issue in order to stay on corporate strategy and developing
drive preventative behaviors. the offensive side of climate change. more adaptable products will not only
speak to customers but will also secure
A critical component of ensuring Arguably, insurers’ performance long-term viability for insurers and the
climate resiliency is conquering is more affected by the results planet as whole.
the insurance protection gap. This and ongoing effects of natural
This report aims to highlight perspectives and concrete illustrations from the We are the first
insurance industry to inform how insurers should think about incorporating generation to feel
sustainability into their strategies and product offerings. We focus on how insurers
should act as responsible societal players and understand the role their brands
the sting of climate
play when it comes to customer expectations. Here, sustainability is defined as change, and we are
business approaches that create long-term stakeholder value while focusing on the the last generation
environmental and some social dimensions of business. We will equip insurance that can do something
leaders with preliminary recommendations on how to respond to evolving market
demands and customer preferences, with the ultimate goal of limiting profit losses
about it.”
and unlocking revenue, all while greenifying company strategy.
Jay Inslee
Governor of Washington
—03
EXECUTIVE SUMMARY
OUR APPROACH
For insurance leaders, we defined areas of focus in which For insurance organizations, we have provided insights
investment in sustainability topics is relevant in both and methodologies that can kick off or enhance the
the short- and long-terms for individuals, businesses, sustainability agenda.
insurers, and communities.
This report covers key trends, mainly centered around
We have scanned the market to collect information from top property and casualty, and takes insights from events
insurers worldwide. and changes across the globe. It will be the first in a series
of reports that will cover additional insurance niches in
We have shared how product and customer expectations are
greater depth.
driving the way insurers should respond to the market.
K E Y TA K E AWAY S
1 2 3 4
We are witnessing a switch The insurance product Insurers who proactively Capgemini Invent’s fields
from the “leading” era to landscape in P&C is take action to increase of play and transition
the “lagging” era changing but there is still climate resiliency will gain matrix aim to design and
room for innovation and a competitive edge assess comprehensive
• Action is imminent as risks advancement strategies to realize
continue to increase and • True climate resiliency is insurers’ sustainable
put pressure on insurers in • New products are achieved when a company ambitions
many ways becoming readily available moves away from surface-
and attract customers level changes that focus • Six fields of play
• Insurers already on their through discounts on managing reputation to must be included in
journey are positioned and rebates more significant structural the plan for success:
to be market leaders transformations strategy, engagement,
in the future • Incumbents need to business models, risk
recognize that non- • Climate risks need to be management, green IT
• Customers are willing traditional players are engrained in strategic and and operations, data
to pay a premium disrupting the P&C operational assessment
when brands and market without any sign and planning • We assess insurers’
their products adhere of stopping and they will maturity along these six
to sustainability criteria continue to take market • Climate resiliency results fields of play to define
share from those without a in a stronger foundation to appropriate action plans
sustainability action plan protect a company against and next steps
climate-related risks and
• A strategy that supports uncertainties, allowing
new product innovation them to stay offensive
to combat the impacts rather than defensive
of climate change
could continue to act as
competitive advantage
across the P&C landscape
—04
S U S TA I N A B L E T R A N S I T I O N I S N O W A
NECESSITY FOR INSURERS, AND IT
W I L L B E C O M E A N O B L I G AT I O N I N T H E
UPCOMING YE ARS
Insurance firms that were proactive be forced to comply or face negative customers (loyalty on green affinity,
when the topic of climate change financial and brand consequences. At decreased demand, poor coverage
surfaced in the early 2000s are the start of 2021, we are at a precipice, options). If insurers act now, there
now considered leaders amidst the beyond which there will be increasing is still opportunity to reap financial
transition to a low-carbon economy. pressure on institutions to strictly benefits. However, every moment they
They continue to capitalize on the comply with “green” norms. Failure to hesitate to address sustainability will
opportunities, whereas firms that have do so will likely result in a loss of profit result in potential profit loss.
yet to begin their transition or are (increased claims, squeezed margins,
only superficially engaged will either loss of product revenue, etc.) and
Figure 1. From the “leading” to “lagging” era
Product and Experience
will become key drivers
Financial
Benefit
WE ARE
HERE
Time
2000 2020 2022
LEADING MEETING LAGGING
Recognition & Rewards Expectation Stigma & Admonishment
EXPERIENCE
� Accolades � Meet Customer Expectations � Loss of Coverage
PRODUCT &
� Positive Attention � Impact Portfolio & Underwriting � High Portfolio Risk
� Free Publicity � Maintain Coverage (Investment & Underwriting)
� Industry Leading � Regulatory Pressures
� Discounts & Incentives � Pressure to conform � Negative Brand Image
� Exceed New Consumer Demands � Pending Regulation
—05
A S C L I M AT E - R E L AT E D D I S A S T E R S
INCREASE IN FREQUENCY AND
S E V E R I T Y, R I S K E X P O S U R E S A R E O N
THE RISE
2020 is widely recognized as having Capgemini’s 2019 World Insurance of releases around climate change and
been a record-breaking year for a Report reviewed a set of macro trends its effects on insurance providers, and
multitude of reasons, one of which is around various factors, including will focus on climate-induced weather
the overwhelming number of billion- technological advancements, evolving events as it relates to P&C insurers
dollar disaster weather events causing social and demographic trends, new across the globe.
the United States $95 billion USD in medical and health concerns, and the
damages, the highest annual total changing business environment, that
cost since 1980.4 Beyond the United are driving the evolving risk landscape.
States, we have seen an increase in However, in this report, we will further
the frequency and severity of natural elaborate on one section of the 2019
catastrophes globally, increasing World Insurance Report:5 the risk of
steadily in just the past few decades. disruptive environmental patterns.
This paper will be the first in a series
Figure 2. Capgemini World Insurance Report 2019; Macro trends driving the risk landscape evolution
Disruptive
environmental patterns
Concerns about the increasing frequency and severity of
New medical and cyclones and wildfires, scarcity of natural resources, and
health concerns increase in micro pollutants (including plastics) are growing.
Rising healthcare costs are a major
concern. Other aspects that contribute to Technological
this bigger trend include increasing advancements
resistance to antibiotics, new viral threats,
and escalating lifestyle-related issues. The advent of the latest technology, such as
artificial intelligence, connected devices, and
nanotechnology has not only exposed
humans to risks related to data security, but
is also altering the very nature of risk itself.
Changing business
environment
Evolving social and
Financial, regulatory, and monetary policy risks
continue to loom over the industry and, along demographic trends
with geopolitical risks and increasing
protectionism, pose a potent threat to steady The lifestyles of different demographics vary
operations. The emergence of tech-based widely and keep evolving. Society is also
firms and new business models also creates changing rapidly, with growing inequality, a
risks that can't be overlooked. weakening social fabric, and a shift in
demographics (for example, the silver tsunami
and an increasingly tech-sawy population).
—06
D E C L I N I N G P R O F I TA B I L I T Y D U E T O F I N A N C I A L I M PA C T O F
I N C R E A S E D F R E Q U E N C Y A N D S E V E R I T Y O F L A R G E N AT U R A L
C ATA S T R O P H E S
Munich Re, a leading reinsurance In addition to higher rates of insured Reinsurers are suffering from climate
group, has stated that the years of the losses, the insurance industry is seeing catastrophes in a way that is unique
Harvey, Irma, and Maria hurricanes a global property protection gap that from primary insurance providers.
(2017-2018), were the worst 2-year has almost tripled since the 1980s. In Reinsurers provide financial protection
period for natural catastrophes on April 2016, the Kumamoto earthquakes to primary insurance companies and
record, with insured losses totaling in Japan resulted in economic losses coverage for risks that are too large
over $225 billion USD.6 Furthermore, of $32 billion USD, with a protection for insurers to handle on their own.
Swiss Re estimated $140 billion gap of $25 billion USD.9 In the summer The majority of these risks were
USD total economic losses from of the same year, the earthquake that formerly thought to be low probability,
natural and man-made disasters in struck Western Europe only saw 10% but have steadily increased in both
2019.7 This damage will be ongoing of its total economic losses covered frequency and severity, which changes
if climate issues are not properly by insurance.10 Though transfer of all the way insurance can be paid out
addressed. According to the CRO climate-related risk to insurers may not and raises capital requirements
Forum, $12 to $15 trillion USD in be optimal for their business models, for reinsurance providers.
assets are projected to be at risk from there is still opportunity to strategically
coastal flooding alone.8 minimize this gap when appropriate
and provide benefit for both the
insurers and the insured.
L AC K I N G O R G A N I Z AT I O N A L A N D S T R U C T U R A L P R E PA R E D N E S S
D U E T O B U S I N E S S M O D E L S T H AT A R E N O T G E A R E D T O WA R D S
C L I M AT E C H A N G E
The Insurance Regulator State of insurers are prepared to deal with the are not measured in current insurance
Climate Risks Survey found that potential impacts of climate-related risk models will continue to surface,
a majority of US state insurance risks on financial stability. Another as illustrated most recently in the
regulators expect all types of insurer third of regulators reported being United States with the collapse of
specific climate risks, including unsure of whether current insurer the energy grid in Texas after days of
physical, liability, and transition, to risk models were up to the challenge unprecedented winter storms and
increase over the medium to long term. of capturing and testing for climate freezing temperatures.
A third of the surveyed regulators related risks. As weather becomes
reported not knowing how well increasingly volatile, more events that
—07
I N C R E A S I N G I N S TA B I L I T Y I N U N D E R W R I T I N G A N D I N V E S T M E N T
P O R T F O L I O S D U E T O R E G U L AT O R Y A N D F I N A N C I A L P R E S S U R E O N
PRODUCTS AND PRICING
Climate change will have a huge impact ability to cover shrinking margins while fire-prone areas of the United States
on coverage scope and underwriting increasing risk in their portfolios. have been defined as ‘uninsurable’ by
assumptions. In the aftermath of most large insurers,11 resulting in their
increasingly common catastrophes, we Regulatory restrictions on increasing reliance on state-funded insurance
will see payouts continue to increase, premiums to match higher levels of plans backed by insurers who provide
driving up the price of protection. risk have resulted in insurers dropping very basic coverage at extremely high
However, this will leave insurers stuck policyholders, leaving them without premiums.
between the regulators, who restrict insurance. In the past four years, an
prices and premium increases, and the estimated 340,000 policyholders in
SCRUTINY OF INVESTMENT PORTFOLIOS
As many financial institutions, such as responsible investment and committed infrastructure, and +$150 million
BlackRock and Barclays, are publicly to managing their assets in a way USD in impact private equity.12 These
committing to impact investing, the that creates sustainable values. They refined portfolios will more effectively
pressure on insurers to re-evaluate currently have +$3.5 billion USD generate and preserve long-term
their own war chests will increase. in green, social and sustainability value, and it is advised that other
Zurich has stressed the importance of bonds, +$700 million USD in impact insurers follow suit.
—08
INSURERS COMMIT TED TO THEIR
S U S TA I N A B I L I T Y J O U R N E Y S A R E
L E A D I N G T H E C O N V E R S AT I O N A N D
REAPING THE BENEFITS
There is no doubt that the insurance industry can play a monumental and
multifaceted role in accelerating the shift towards more sustainable economies and
communities; insurers not only act as protection providers, but also risk managers
and investors. Trends around shifting investments, working collectively to influence
change, and anchoring decisions on sustainability around research and science are
surfacing, especially across Europe - see Figure 3:
Figure 3. Complex normative environment
Swiss Re announced that by Insurers, climate research orgs,
2023 it would stop and the World Bank launched this
providing insurance to and initiative to create a balance
investing in the world’s 10% between GHG emitters and
most carbon-intensive oil developing countries that are
and gas producers most vulnerable to climate change
Move Away Munich Climate
from Oil & Gas Insurance Initiative
Move Away UNEP FI Principles for UN Net-Zero Asset
from Coal Sustainable Insurance Owners Alliance
The top 10 European P&C The top 10 European P&C Insurance corporations
insurers have ceased or insurers have ceased or constitute 12 of the 26
restricted insurance coverage restricted insurance coverage members of this coalition
of coal-related assets of coal-related assets of investors with $4.6T
AUM, committed to making
their portfolios carbon
neutral by 2050
—09
We see individual insurers also taking tangible action to edge themselves to the
forefront of the sustainability conversation - see Figure 4:
Figure 4. Leading European insurers in the sustainability movement
Munich Re was the first global insurer to offer Zurich insured Desert Sunlight, the building of one of the
performance coverage for battery storage largest solar power projects in California
Allianz has launched the Allianz Climate Generali has created a competence center to ideate
Transition Fund to foster a low carbon economy and share best practices in underwriting the specific
risks of the renewable energy sector
Several Swedish insurance companies have made large SwissRe announced that by 2023 it would stop providing
investments in social bonds (issues by the World Bank, EIB, insurance to and investing in the world’s 10% most
NIB and Stockholm region) to fight the Covid-19 pandemic intensive oil and gas producers
A handful of American insurers embarked on their sustainability journeys as well,
though there is still a great deal of work to be done. In the works are programs
specifically targeted at natural catastrophe recovery and shifting investments into
risk modeling and sustainable funds - see Figure 5:
Figure 5. A sample of American insurers in the sustainability movement
Sustainable Sustainable Environmental Wildfire
Investing Performance Alerts Vigilance
AIG has established an EDG divided Cigna has adopted a strategic Chubb has developed an Liberty Mutual has developed a
fund to promote sustainable and sustainability performance plan Environmental Incident Alert new stochastic wildfire model by
impact investing, also promoting designed to manage global real program, which facilitates adjusting their latest wildfire
Natural Catastrophe risk modeling estate portfolios, with a focus on more rapid dispatching of model to better match Liberty's
and climate risk anticipation emission reduction, energy incident-response contractors as historical dataset, underwriting
preemption. AIG is also a efficiency, reusability/ recycling well as real-time monitoring of practices and latest info on
participant in the Rockefeller and waste management clean up funds weather and wildlife
Foundation “100 Resilient Cities” relationships
program, in which they help to
identify and mitigate risks in urban
planning and management
These trends, combined with tangible actions taken across various insurers, lead us
to believe that sustainability will become institutionalized and major investment will
be required. The environment, competitors, and natural disasters will continue to
deliver this message.
—10CONSUMERS ARE BECOMING MORE
E N V I R O N M E N TA L LY C O N S C I O U S I N
THEIR ACTIONS AND THEIR
CONSUMPTION HABITS; INSURERS
NEED TO MEET CUSTOMER DEMANDS
Capgemini’s 2019 World Insurance plays into their brand will also become From a customer expectations
Report states, “future insurers will a major key to customer adoption and perspective, policyholders are now
act as a partner by becoming more retention. There will be no customer prioritizing strong coverage for
involved in customers’ daily lives, and shift if insurers do not practice what natural disasters and coverage for a
as a preventer by providing risk-control they preach. growing market of sustainable habits.
advice, all while being the payer that Furthermore, a recently published
covers potential loss.” To help manifest Additionally, incumbents cannot study found that nearly 70% of
this ambition, insurers must play assume that brand recognition will consumers in the United States and
specific roles as sustainability moves be enough to tide them over as Canada believe it is important that a
on to corporate agendas. On the one the sustainability agenda comes to brand is sustainable or eco-friendly:13
hand, they need to be good corporate the forefront. Insurers must create
citizens, and on the other, they need to their own identities as they relate to • 70% of people are more aware now
be purveyors of sustainable trends and sustainability. Information is now at than before COVID-19 that human
products. the fingertips of anyone who is looking activity threatens the climate14
for it. Consumers have become more
As corporate citizens, insurers should educated on the sustainability of the • 87% of consumers feel that
reflect internally and understand organizations they support and are companies should integrate
their purpose or vision for their looking for companies with transparent environmental concerns into their
own sustainability journeys. They and robust sustainability practices. products, services, and operations
must continually ask themselves: Insurers should focus on defining how to a greater extent than they have
how will employee values and they are driving green initiatives to in the past15
internal operations demonstrate capture consumers that will only do
commitment to sustainability? What business with companies who share • Impact first investors are ready to
can the organization do to prevent their values. lower their annual yield if the assets
climate related risk from rising? they’re investing in have a positive
Considerations for how sustainability social or environmental impact16
—11Factors such as social endorsement • Customers are abandoning products We see this shift already taking place in
of sustainable practices, increasing that have violated environmental the other parts of the financial services
approvals in communities and social norms in their production processes, sector. BlackRock’s CEO, Larry Fink,
networks, and influencing patterns distribution methods, marketing has committed his organization to
are having a domino effect on the approaches, or even utility value integrating ESG into their investment
customer psyche: processes. Barclays has also taken
• The appeal of sustainability has a stance on making impactful
• Customers perceive sustainability permeated the customer psyche investments and growing their product
as a crucial differentiator for the and has given rise to the associated offerings across ESG. They place
brand value of their choice and may “social signaling,” whereby sustainability at the core of the way
go on to pay a premium to acquire consumers purchase certain they do business.
a product that is “sustainable- products because they help in
branded” as opposed to one that communicating a distinctive persona
makes no mention of it to the outside world. In short, being
sustainable is chic
—12I N T H E FA C E O F C L I M AT E C H A N G E ,
THERE IS OPPORTUNITY AND A NEED
TO BUILD NEW PRODUCTS AND
I N FLU E NCE B E H AV IOR T H ROUG H
EMBEDDED OPPORTUNITIES
Similar to their bank counterparts, to repair the damage of the likes of always be a group of people willing to
insurers must focus on providing hurricanes, earthquakes, and tsunamis keep the status quo who would rather
sustainable insurance products. to cover the protection gap. Examples pay for convenience. However, there is
Their position in the market and their include FEMA for hurricanes Katrina a plausible alternative solution to shift
motivation to meet evolving consumer and Sandy in the United States and the customer behavior. As claims are paid
demands and green norms is ripe. disaster relief budget for the Tohoku out on destruction, whether caused by
But unlike banks, insurance providers earthquake in Japan. However, with climate conditions or not, insurers can
are uniquely positioned to address the cost of these relief plans hitting embed certain criteria to complete the
the protection gap and encourage taxpayers and potentially being claim in order to passively command
resilient behaviors. When considering bottlenecked by political red tape, green behavior. Instead of increasing
the amount of insurance that is there is opportunity for the insurance premiums in high risk areas, insurers
economically beneficial compared sector to provide supplemental and can create stipulations and refuse
to what is actually purchased in the alternative products to government claims payout if these standards are
P&C space, it becomes increasingly packages. For example, insurance not met. An example is incorporating
clear that there is opportunity for P&C companies can provide innovation green building practices around solar
insurers to strategically grow their around faster payout or opt-out energy, water filtration and use of
revenue, market share and product alternatives in high risk areas to ensure natural materials for how properties
offerings, while simultaneously coverage. are fixed or rebuilt after incurring
offering greater swathes of damage. If the entire industry
coverage to the communities that While it might seem like shifts toward this practice, it could
desperately need it. a straightforward proposition to ask potentially lower the total value of
insurers not to provide coverage to claims paid in addition to moving the
As environmental catastrophes customers who have no intention of needle on consumer behaviors one
continue to take place, governments making more sustainable choices, this natural disaster at a time.
often provide relief and subsidies is not a realistic expectation. There will
—13NEW PRODUCTS AND THE
ROLE OF INSURERS IN THE
S U S TA I N A B I L I T Y V A L U E C H A I N
Large insurers, many of which are example, UK based insurance provider coverage-based cushion against rapid
European, have started to create AVIVA has launched an offer to support change and risk, so they can focus
sustainable insurance products for sustainable energy providers in project their resources on technological and
consumers incorporating sustainability financing and risk coverage.17 France- sustainable innovation. The insurers
into their daily lives. They have based company Credit Agricole has in this group of early leaders are well
designed insurance products to save launched an offer for sustainable positioned as the economy transitions
eco-conscious consumers money in the farmers with exclusive warranties toward long-term decarbonization.
form of home, auto energy-generation to prevent or better compensate Today, we see sustainable insurance
insurance or pensions and savings weather-caused losses.18 products often take the form of
products. They have also designed discounted insurance plans for
products for corporations who have Insurance products focused customers who are adopting green
committed themselves to integrating specifically on the renewable energy practices to reduce their energy and
sustainability into the value chain. For industry provide companies with a resource consumption:
Figure 6. A selection of sustainable insurance products offered by insurers in the United States
Pay As You LEED Green Energy Green Green
Drive (PAYD) Certifications Rebuild Generation Behavior Building
Benefits Discounts Restoration
Consumers can choose Premium discounts are Insurance coverage Homeowners who Consumers can receive In the event of a total
a flexible monthly car offered for homes that replaces generate and sell premium discounts if loss, the policy will
insurance rate, that meet certain damages with an surplus energy can they can prove that cover the cost of
which varies based on efficiency and eco-friendly version receive additional they purchased hybrid rebuilding as a
miles driven sustainability policy benefits or electric vehicles green-certified
standards building
—14However, there will be additional benefits to be achieved as sustainability trends make their way into the mainstream
and regulation catches up. Listed below are some additional sustainable insurance products offered in the
personal insurance market today:
Figure 7. Additional personal sustainable insurance products focused on property/home
Personal Lines
Property Renewable Energy Property Renewable Energy Reimbursements offers protect homeowners who use an alternative
Reimbursements energy system and experience a power outage. This type of coverage may provide indemnification for:
� Loss of income from selling surplus energy generated to local energy companies
� Utilities or governmental fees for inspections, reconnections or permits when the homeowner’s
alternative energy system is brought back online
� Costs to purchase replacement electricity.
Property Loss Mitigation Premium discounts of credits may be offered to homeowners to install mitigation devices or choose
Device Discount storm resistant construction techniques in catastrophe-prone areas, i.e., window shutters for
protection against extreme storms and wind.
Fuel Efficient/Low Emission Many insurers provide discounts to drivers of hybrid or electric vehicles.
Vehicle Discount
Insurers are also providing sustainable products to protect corporations and large organizations against general business risks.
Listed below are a few of the most common sustainable insurance products offered in the commercial insurance market today:
Figure 8. A selection of sustainable insurance products offered to corporations
Commercial Lines
Upgrade to Green Commercial Fleets This type of product offers an option to upgrade the company’s fleet to hybrid vehicles for new
vehicle replacement as part of an endorsement to the policy.
Insurance for Renewable Energy These insurance products help companies in the renewable energy industry manage risk, defend
Projects against lawsuits, and protect their assets. The coverage on these products spans across all stages of
a project, from design to distribution.
Insurance for Renewable Energy This type of coverage protects companies from incurring high costs from the rapid technological
Industry’s Property and Equipment changes in the renewable energy field. These policies will provide replacement cost coverage for
equipment that is more energy efficient. Equipment currently in operation, under construction, or
Upgrades/Replacement newly purchased can be added to the policy.
These lists will continue to grow as society’s awareness of climate change and its impacts increase. Additionally, as regulatory
pressure/government incentives come to the forefront, the number of sustainable insurance products in the market is likely to
grow in tandem.
Insurance companies’ investments should follow suit, with portfolios comprised of more sustainable investments. Just as
BlackRock did, insurers with their own Investment arm and Corporate Treasury should make more eco-conscious
investment decisions.
All in all, climate change and its effects will be a big part of all our futures and there are many gaps in coverage that insurers
should strive to close. Insurance companies who want to reap the benefits of being an early market leader in the green insurance
space should prioritize investing in product development and innovation, along with recalibrating their own financial portfolios.
—15IMPAC T UNDE RWRITING A S
AN OPPORTUNITY FOR RISK
M I T I G AT I O N A N D P O S I T I V E S O C I A L
A ND BUS INE S S IMPAC T
The market for sustainable insurance offer a ‘double dividend’ to insurers, sustainability in decision making are
products is growing, but is this enough generating revenues while realizing likely to see higher yields and improved
to drive sustainability and change positive externalities for society. investment performance. Sustainable
consumer behavior in the long run, or is According to the EIA, global energy investment offers the practical benefit
it merely a band-aid? demand is projected to increase 50% of more durable and secure yield to
by 2050,19 which will prompt $23 trillion insurers as investors. As the economy
A forward-looking strategy for insurers in renewable energy investments over transitions toward decarbonization,
to both protect their book of business the next decade.20 These investments we anticipate asset price fluctuations
and pivot their resources towards in emerging markets will open a vast and investment portfolio volatility.
sustainability is “underwriting green”, and growing underwriting market for Insurance providers must evaluate the
or impact underwriting. This type of insurers, which ultimately translates to exposure of their investment portfolios
underwriting requires divestment more revenue. to both physical and transitional risk,
from industries that are increasingly particularly in instances where both
risk prone and present ethical and Additionally, evidence suggests that assets and liabilities could be affected.
environmental challenges. It can insurers who consider climate and
—16LOSS AND RISK MANAGEMENT DUE
T O C L I M AT E C H A N G E I S U N I Q U E F O R
INSURERS AND CAN BE A KEY
D I F F E R E N T I AT O R – B U T I S B E YO N D
I M M E D I AT E C O N T R O L
Climate change creates opportunities financial risks have been classified • Managing financial resiliency will
for insurers to change their business according to the following groupings:22 become a key regulatory focus
models to incorporate sustainability for insurers. Complying with
into their growth strategies, leveraging • Physical risks: Economic costs regulation requires an adaptation
new technologies and new products and financial losses arising from of the solvency tools and the loss
to help make risks that are uninsurable weather-related events, such as projection models in order to
today insurable in the future. However, floods and storms provide a clear perspective on the
we cannot talk about climate change in new risks faced, their correlation to
the P&C industry without recognizing • Transition risks: Financial risks arising the traditional ones, as well as a view
that there are some risks that require from the process of adjustment of an insurer’s capital position under
government and policy intervention. toward a low-carbon economy, stressed scenarios.
At an aggregated systemic level, both including shifts in policies designed
insurers and reinsurers could be heavily to adapt to climate change In this rapidly changing landscape, an
impacted by the same major events in (regulatory frameworks, incentive insurer’s risk management approach
the near future, leaving both insolvent structures), technological progress, is becoming a differentiator for
if governments and regulatory bodies or changes in market trends insurance companies. Insurers should
do not intervene. address their climate risk assessment
• Liability risks: Erosion of the value within their broader Enterprise Risk
The impact of climate change on of financial assets (e.g. re-pricing Management frameworks to identify
secondary peril events losses (e.g. of carbon-intensive assets), and/or and correlate all these impacts across
flooding because of a major hurricane), increase of liabilities through direct the organization, including identifying
is becoming more and more significant. or indirect losses the risks related to strategy,
According to Swiss Re Institute’s reputation, governance, operations,
preliminary sigma estimates in 2020, Climate change has already started technology, underwriting, liquidity,
insurance industry losses from natural to influence regulatory requirements capital, and overall profitability.
catastrophes and man-made disasters and will have a significant impact on
globally amounted to USD 83 billion insurers’ regulatory compliance in the
(USD 76 billion Nat Cat).21 This makes coming years. Insurers might want to
it the fifth-costliest year for insurers consider the following:
since 1970. The insurance industry
covered 45% of the $187 USD billion • Supporting the green and / or
global economic losses, well above the penalize the brown will become a
ten-year-average of 37% coverage. mandate. Assigning lower / higher
risk weights can have a significant
A global approach is needed to assess impact on an insurer’s investments
emerging risks. Since the publication management as well as profitability.
of the TCFD (Task Force on Climate- While this is yet to be determined on
related Financial Disclosures) report a country by country basis, insurers
in 2017, following the G20 and Paris must be prepared to make decisions
COP Agreement, the climate-related in this arena.
—17NEW MARKET DEMANDS ARE BEING
FU L FIL L E D BY NON -T R A DI T ION A L
P L AY E R S
There is still room for new market to provide Tesla-owners with a fair which primarily use a behavior-based
entrants. In recent years, a number of insurance premium. pricing model, by giving drivers control
non-traditional firms have captured over how much they pay for auto
a share of policies sold by leveraging Lemonade, a publicly traded insurance with a dynamic pricing model
their appeal to customers specifically online insurance company, offers focused on the number of miles driven.
interested in social and environmental homeowners and renters pet and life Metromile asserts that a majority
responsibility and who seek innovation insurance. Launched in 2016, they of auto policyholders pay higher
in the insurance market. boast 500% growth, have 10% of the premiums to subsidize the minority
renters market’ in Texas, and $100 who drive the most.25 It can offer lower
Tesla Insurance appeals to an eco- million annual recurring revenue in monthly premiums to policyholders
conscious crowd by default, offering just under five years.24 These numbers who take multiple forms of transit,
insurance products to only those are leading indicators of where the such as public transit, walking, or
who have already invested in their insurance market is headed. As the biking, beyond just driving their cars, a
electric vehicles (EV). Tesla holds first insurer in the world to become bonus for the planet and a disruptor to
the greatest share in the EV market, a certified B-Corp, Lemonade aims less flexible auto policy providers.
posing a threat to the sustainable to achieve full transparency with its
auto insurance product space.23 Tesla customers and allows each policy Many new market entrants are
Insurance gains competitive advantage holder to select a nonprofit to which a equipped with innovative data
against traditional auto insurers by portion of Lemonade’s annual revenue acquisition methods, offer their
easily accessing and analyzing massive will be donated, appealing to a socially customers increasingly personalized
amounts of data to understand minded group of buyers. premium rates, and appeal to a
their vehicle owners’ behavior. While culture of sustainability and efficiency.
traditional insurance providers rely Metromile is an online auto insurer This makes them threats to large
heavily on their actuaries to determine that targets infrequent drivers by incumbents. Additionally, these
optimal premium rates, Tesla taps into selling car insurance on a pay-per-mile pioneers have set the groundwork
each member of its connected fleet basis. Metromile differentiates itself for additional sustainability minded
to acquire all the information needed from other pay-as-you-drive products, disruption in the P&C space.
—18A C ALL TO AC TION FOR INSURER S
As the trends suggest, insurers are in a position to receive and drive benefits from
sustainable insurance, and should take action sooner rather than later when it
comes to climate change.
1 2 3
Through intentional alignment By investing in new risk modeling and For the greater good of society,
of their brand with sustainability underwriting practices to ultimately insurers can drive resiliency and the
and eco-friendly positioning, drive product innovation, insurers ability for people, businesses and
insurers can attract and maintain will be in a position to minimize the communities to rebound in the face of
climate-minded consumers protection gap and generate additional climate change by mitigating additional
revenue opportunities that are not impacts of climate change and
prevalent in the market today providing consumers with innovative
and preventative tools and products
—19HOW INSURERS SHOULD INVEST IN
T H E I R S T R AT E G Y A N D R E S O U R C E S
T O S TAY A H E A D O F C L I M AT E C H A N G E
AND ENABLE THE CALL TO ACTION
T H E R E A R E S I X I M M E D I AT E F I E L D S O F P L AY I N S U R E R S N E E D
T O TA C K L E
At Capgemini Invent, we understand Integrating sustainability into a addressing growing regulatory
that technology and innovation corporation’s business strategy is more needs, minimizing the protection gap,
are the keys to unlocking a more than a marketing tool or the ambition of generating new revenues, and gaining
sustainable world. We believe insurance a niche sector: it’s the only viable way to overall resilience.
companies that have not yet recognized improve yield and control strategic risk.
the importance of investing will It is no longer a question of reducing
soon face huge hurdles in growth carbon footprints, but of adapting to
and financial viability. new societal expectations,
—20Figure 9. The six strategic fields of play
New Products & Services
• Support innovation to build new
offerings: sustainable insurance solutions,
emerging customers solutions and asset
Stakeholder Engagement & management solutions Strategy, Innovate &
Customer Experiences • Develop new products and services Transformation Roadmap
• Engage customers towards a social to support • Define a purpose, a vision, an ambition
economy, rethink the brand experience • Build supporting business models • Know your starting point (maturity
• Identify and manage the impacts on the • Rebuild the Customer Experience diagnoses)
businesses • Define a roadmap (e.g. carbon zero) at
• Engage employees, agents, brokers, operational and portfolio level
customers (from awareness to training to • Build the transformation plan
best practices)
• Establish good organization and appropriate
• Manage the relationship of external governance
stakeholders (regulators, investors, NGOs,
• Identify ecosystems and potential
etc.) to support the transformation and
partnerships
visibility in the ecosystem
• Leverage new technologies to create new
• Close the protection gap for more
distribution models through digitalization
customers
and / or partnerships
Responsible Operations & Processes Green IT Practices
• Implement energy efficient business • Determine a vision and objectives for the IT
practices to decrease the carbon footprint department
of the insurance operations • Diagnose (infrastructure, applications and
• Incorporate ESG factors in the selection of equipment, project mode, etc.)
asset managers • Build the action plan
• Develop and maintain an appropriate • Take into consideration ESG factors when
approach to disclosure around climate- commencing new projects
related financial risks. Such disclosure
should allow for interaction with existing
Data & Measurement • Adapt the Business Continuity Plan to
include emerging risks
risk categories and for the newly introduced, • Define the necessary indicators (reporting,
distinct elements of financial risk from management, risk monitoring, etc.) and
climate change identify the necessary markers (value chain
• Set up a sustainable real estate strategy analysis)
• Partner with like minded vendors who meet • Build the data collection process & set up
ESG criteria data governance
• Formalize the ability to cope with potential
future outcomes in risk frameworks and
include climate change consideration in
emerging risk assessment
• Implement advanced analytics to improve
risk selection and pricing. Augment climate
change models with big data information
• Implement stress tests to determine capital
and liquidity implications and anticipate
future losses
—21H O W W E H E L P I N S U R E R S TA C K L E T H E F I E L D S O F P L AY
1. Outmaneuver Disruption with 3. Engage Stakeholders and Meet attract and retain talent, and to
Strategy & Innovation Customer Demands ignite a sustainability mindset and
Insurers must evaluate the maturity As the market for sustainable foster innovation. Capgemini’s
of their sustainability strategy and lifestyle products and services North Star experience strategy
clarify their ambitions. Capgemini grow, leading insurers must work to and execution capabilities can help
Invent has developed assessment close the gap between consumer drive stakeholder and customer
tools that can help identify the demand and insurance product experience to meet eco-friendly
strategy and define next steps. supply. Greenwashing is no longer user demands.
This is necessary to identify and cutting it; consumers now expect
implement priority actions, to sustainability to run deeper within 4. Drive Responsible Operations and
establish a relevant roadmap that an insurer’s values. Insurers not only Processes
enables an organization to truly need to meet customer demand, but True change always comes
transform toward sustainability, must also work to change customer from within. An insurer, or any
and to innovate new products behavior. Their products need to corporation, cannot claim to value
and services addressing changing incentivize sustainable behavior sustainable practices without
consumer expectations and in personal and commercial line incorporating sustainability-
demands. Ambitions of driving insurances, across P&C, in addition focused processes into their
resiliency and change start here. to life and health. internal organization. Capgemini
has demonstrated a commitment to
2. Design and Deliver Sustainable Intelligent communication becoming a leader in sustainability
Insurance Products with stakeholders is essential by reducing our key environmental
As consumer demands shift towards to enhance commitments and impacts (business travel and energy
green preferences, the ability to promote sustainability initiatives. consumption in offices and data
quickly innovate, test and deliver Insurers must position themselves centers), as well as committing to
new products will allow insurers as influencers, leveraging their being carbon neutral operational
to understand the viability of new enterprises to organize events by no later than 2025, and a net
ideas and products. Capgemini and develop an ecosystem of zero business by 2030. Led from
has the robust capability to help partners and interlocutors to enrich the top, ESG ambitions are now at
with determining optimal areas for their strategy and meet growing the core of our operating strategy
investment, facilitate partnerships, customer expectations. and the Group’s purpose – to build
build and run incubation an inclusive and sustainable future
environments, facilitate and drive Moreover, this external influence for all, enabled by technology,
product design capabilities, and help starts with a strong change drawing on the energy of our talents
organizations embed innovation into management program to train and the talents of our customers
their operating model and portfolio. and engage employees, both to and partners.
—22Some leading insurance buildings and green supplies, to streams of sustainability data
organizations have outlined enable best practices. Insurers coming from the news, government
aggressive timelines and plans to who successfully achieve a green regulations, social media, and
decarbonize their operations to IT transformation will be able company reports. They can collect
stick to their climate strategy. They to enjoy the benefits of savings and analyze data on sustainability-
can rely on partners like Capgemini in their energy bills, improving related factors such as scope 1,
to help them achieve their high- their operational efficiency, more 2, and 3 emissions, supply chain
set goals. Whether players want to efficient products, and financial performance, and energy and
strengthen their climate-centricity gains related to technology resource use. Companies able
through the deployment of green optimization and usage to generate deep insights in
operations and processes, supply streamlining. Capgemini has robust their sustainability metrics can
chain, investments, or underwriting capabilities to help insurers focus use these insights to guide their
portfolios, it is important to have a on replacing their carbon-intensive sustainability initiatives, improve
partner who can help them remain habits with the help of technology their resource efficiency, develop
committed to these goals. and optimizing their existing relevant products and be well
models and systems with more equipped for climate-related
5. Invest in Green IT Practices responsible solutions. reporting efforts. Advanced
Green Information Technologies analytics are integral to identifying
reduce the environmental impacts 6. Use Data to Drive the and proactively mitigating future
associated with conventional Sustainability Agenda risks in areas such as resource use,
IT. Green IT includes server Leveraging new technologies is labor practices and environmental
virtualization, energy efficient key to enhancing operating and impact. Organizations can rely
hardware and data centers, monitoring capabilities, particularly on Capgemini’s expertise in this
and monitoring systems. Green in risk analytics. Data and analytics area to support the build of
infrastructure should also be technologies can address the these capabilities.
considered, with the likes of green challenge of tracking the many
—23Figure 10. Capgemini Invent’s transition assessment criteria
BASIC IN TRANSITION FRONT RUNNER
• Compliant with current regulations • Strategic vision is clearly defined: • Embedded ongoing climate risk assessment
VISION,
STRATEGY &
GOVERNANCE
• Sustainability transition is a small engagement, business model, risk and mitigation efforts across the company,
part of the vision and strategy management, IT including underwriting, pricing, reserving,
• Implemented a clear governance structure, investing, and in new product development
with the creation or assignment of dedicated • Management structure associated with
roles to evaluate the potential impacts of risk management, setting an appropriate
climate-related risks risk culture and ensuring a common risk
language across the firm
• Immature sustainability culture • Raises business partners’ and policy holders’ • Has strong internal sustainability culture
ENGAGEMENT
• Tactical external communication awareness about sustainability issues to • Leads its ecosystem towards the transition
promote investments in the sustainable
• Discloses publicly progress in implementing
economy
principles for sustainable finance
• Takes steps to better demonstrate the
insurance climate readiness to regulators,
analysts, and customers
• Fairness in data collection, • Integrates ESG factors in the computation of • Climate risk assessment included in the
BUSINESS MODEL
development of risk models and the financial solvency rate (the risk of a bond broader enterprise risk management (ERM)
pricing as well as the risk of the issuer) framework to identify and correlate impacts
• Management of the aggregate risk • Uses a holistic approach toward managing across different lines of business as well as
to control insolvency exposure climate-related risks by integrating investments
• Fortify the assessment of climate- them as a part of their enterprise risk • Implements organization-wide stress tests
related risks while taking long-term management efforts of a broad range of climate change scenarios
actions to alleviate and mitigate to determine and anticipate capital and
such exposures liquidity implications
• Few sustainability-focused projects • Leverages new technologies to create new
distribution models
• Diagnostic done (infrastructure, • Many high impact initiatives around green IT • State of the art green IT (infrastructure,
GREEN IT
applications and equipment..) and practices and sustainable design apps, culture) aligns with planet centric
some initiatives around paperless or • Rationalized application landscape design principles across the insurance IT
sourcing have been launched landscape
• Adapts the Business Continuity Plan to
• Determine a vision and objectives include emerging risks
for the IT department
• Has launched some initiatives • Support innovation to build new offerings: • Leads in ESG compliant offerings
OPERATIONS
around green sourcing to leverage sustainable insurance solutions, emerging development, anticipate market trends
suppliers to decrease its carbon customers solutions and asset management • Focused on closing the protection gap
footprint solutions for more people and provide access to
• Define product pricing to incentivize clients affordable financial services tailored to their
to invest their capital in green assets needs
• Consider ESG factors in selection of asset • Includes sustainable finance in the early
managers underwriting process
• Implement energy efficient business • Rebuilt the customer experience
practices to decrease the footprint of
insurance operations
• Tactical data collection and reports • Reviews the loss projections model to remain • Appropriately includes climate change
MEASURE
• Automate dashboard and reporting current about the latest data and loss control consideration in forward looking emerging
advances risk assessment, current Key Risk Indicator
• Implement advanced analytics to improve (KRI) assessment and backward looking
risk selection and pricing ‘lessons learned’ from unexpected losses or
control failures
• Augment climate change models with big
data information • Appropriately includes climate change in the
Risk Tolerance Statement
—24You can also read
