Sustainability is a key issue in the insurance sector, both for brand image and future profitability. In January 2021, LV=’s site in Redhill was carbon-neutral, making it the company’s first UK office to achieve this. The site’s comprehensive carbon management plan meets the specifications of the British Standards Industry’s PAS 2060. With large event lost, such as hurricanes, fires, and earthquakes increasingly becoming an issue for the claims landscape, more UK insurers should enhance their efforts to combat changing environmental impacts.
GlobalData’s Insurance Thematic Scorecard finds that the majority of UK insurers fall behind in their sustainability efforts, in contrast to insurers in other countries such as France, Switzerland, and Germany. For example, the scorecard finds that Allianz, Chubb, Zurich, and AXA are among the leading insurers, with other companies such as Ping An also scoring the maximum five points for incorporating environmental, social, and governance issues related to sustainability as key aspects of their business models.
In the UK, there are some standards – but for environmental targets rather than sustainability. However, sustainability also takes into account social and governance issues, making it hard to measure. The lack of a measurable outcome discourages insurers from implementing suitable targets. However, companies that embrace aspects of sustainability will outperform their peers. CEOs that are too slow to improve their company’s approach to sustainability risk damaging their reputation and brand image.
Perhaps more importantly for the industry, the impact of climate change is already being seen and is having a severe impact on profits. Severe weather events such as the Australian wildfires have cost insurers and reinsurers millions, and as climate change gets worse, events like these will become more common. The situation makes claims frequencies significantly higher and consequently premiums harder to price.
Current global efforts to standardise sustainability are being pushed by the UN’s Sustainability Development Goals, the Paris Agreement on Climate Change, and the Sendai Framework for Disaster Risk Reduction. With growing pressure on all businesses across the world to find solutions, insurers should embrace the changing market environment and attempt to incorporate sustainability guidelines as part of their future business strategies.