May 12, 2023

Four tips towards Green Insurance

Iti Kapoor

Iti Kapoor

Four tips towards Green Insurance

Insurance leaders are increasingly receiving the same questions from investors, customers, and partners:  

 How are your underwriting and operational practices aligned to the global sustainability agenda and green revolution?  

What is your net-zero strategy and how is sustainability integrated into your insurance product strategy?  

Sustainability is no longer a compliance exercise and is proving to be a credible indicator for better business performance.  

 This trend is set to continue and will become a pre-requisite for insurance companies to do business. Insurers should not underestimate the scale of the challenge, as it has implications across the insurance value chain and broader ecosystem. According to a leading insurance provider, this has also proved to be a source of differentiation for them and provided them with a leading competitive advantage. 

With sustainability being a key commitment and priority for Credera and our Insurance clients, we are sharing our four tips for insurance companies to help tackle sustainability and mitigate financial and regulatory risks.  Read next: Making sense of sustainability: Part one

Tips for achieving Green Insurance  

1. Start with senior sponsorship & stand-up change management capability  

We spoke to an industry-leading Insurance provider to understand the success factors behind their award-winning sustainability strategy. Among other factors shared, they stated that senior sponsorship has been a key contributor to an effective sustainability agenda. Having senior level sponsorship at Group Executive level is crucial to address sustainability related challenges and opportunities for insurance companies. 

One approach insurers take to instil senior sponsorship is to recruit and appoint Chief Sustainability Officers (CSOs). CSOs create corporate sustainability strategies, assign clear targets, manage and measure the delivery of environmental objectives, orchestrate third-party suppliers, and drive transformational change. By appointing CSOs, insurers can ensure leadership responsibility and accountability for sustainability. In addition, CSOs can increase agility against rising regulations, improve the integration of sustainability into broader business objectives, and manage risks. 

Another approach insurers take to unlock sponsorship is to deploy internal change capability and support senior leaders to deliver against sustainability commitments. Internal change resources mitigate the risk of resource constraints and address the organisational design considerations that need to be made within a sustainability roadmap. This could mean establishing a programme framework, including key resources (e.g., project manager, business analyst), having robust governance framework and funding, and embedding lower-level targets and outcomes across the insurance business operations. Based on our interview with an industry-leading insurer, internal change agents accelerated their progress and helped drive the required organisational change.   

2. Establish baseline & associated data models 

  Forming a net zero data model early around your current insurance operations to establish a baseline and operationalising this within the business should be seen as a strategic priority. An effective data model provides the framework for analysis, setting prioritised targets, measuring, and reporting on progress, all of which helps to maximise the impact of investments. Green data models should include data from customers, suppliers and other third parties to ensure Scope 1, Scope 2 and Scope 3 emissions are accounted for, providing a complete view of the insurer's business operations. It would also draw on data from the wider insurance ecosystem to provide a complete picture of the insurer’s impact - e.g. delegated underwriters, suppliers, and the various companies in the claims supply chain. 

However, this is not without its challenges, as ESG data is complex and fragmented across multiple sources with varying data quality. Addressing this with a team of data specialists will be key to maximising the impact of your green initiatives, to ultimately inform pricing models and help address climate-related risks for insurers.  

3. Establish clear targets 

  With solid baselines and associated data models in place, insurers must make sure that clear, specific, and realistic goals are set towards measurable targets  These targets need to be independently verifiable and set against science-based target initiatives (SBTi) standards.  

A key consideration insurers need to address when setting targets is to avoid ‘Greenwashing.’ Greenwashing is described by the FT as the ‘use of misleading environmental claims to entice well-meaning customers.’ According to the FT, the recent ‘explosion in the number of exchange-traded funds’ has driven greater awareness around the degree of authenticity and credibility of sustainability efforts.  

 Regulators and consumers are therefore keeping a close watch to ensure that sustainability plans and actions are credible. Insurers should be clear about their current positioning, have the right data in place to inform what needs to be addressed, establish clear targets, implement sufficient due diligence, and be able to credibly demonstrate progress over time.   

4. Focus on scope 3 emissions for sustainable insurance operations      

GHG Protocol has recommended standards for organisations to identify and tackle their emissions by classifying them into three scopes - 1, 2, and 3. This is based on whether the emissions are being emitted directly or indirectly from the business operations. Once an insurer has identified different scopes of emissions and set sustainability targets to reduce them, they should turn their focus towards scope 3 emissions, which normally account for more than 70% of a business’ carbon footprint. Scope 1 & 2 emissions tend to be more straightforward to measure and control (by taking steps like switching to renewable energy or electric vehicles), however scope 3 emissions can require more time and focus.  

To tackle scope 3 emissions effectively, insurers should re-align their investment portfolio and embed net zero into procurement and supplier management frameworks. They should set clear targets for reducing the carbon intensity of their investment portfolio, as well as managing third parties by awarding contracts to suppliers that have clear science-based targets and a credible path towards net zero. When we spoke to an industry-leading insurer, we discovered that whilst they recognised the challenge for insurers to manage third parties, they also acknowledged that having clear science-based targets helps in driving accountability amongst third parties. 

In a nutshell 

As environmental sustainability is still a developing area, insurers are still working towards getting the right methodology in place before driving capital towards sustainable outcomes and transitioning to a net zero business model. Rather than falling for perfection, insurance companies should make sure that net zero goals have an equal footing to other business growth areas - celebrating small wins, showcasing continued advancements, and progressively working towards achieving their sustainability goals.    

At Credera, we help insurers, reinsurers, and brokers on their journey towards sustainability through the correct use of data and business transformation services. We lead from vision through to execution of your insurance business’ sustainability goals.  

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