On Earth Day, we once again take a moment to reflect on the growing threat of climate change. In recent years, climate change has crept into every sector of our lives, including the insurance industry. Modern clients now expect environmentally friendly policies — but what, exactly, does this mean?
It turns out, the insurance industry has been incorporating sustainability into its core for over a decade. From high-level governmental protocol to simple internal changes, there are a variety of ways in which the insurance industry is driving environmental change. In honor of Earth Day 2023, let’s take a look at three key sustainable insurance initiatives.
The United Nations Principles for Sustainable Insurance
One of the key concepts behind modern sustainable insurance was developed over ten years ago, yet still remains a massive influence on many insurance companies today. Announced in 2012 at the United Nations Conference on Sustainable Development, the Principles for Sustainable Insurance (PSI) represent a collaboration between the global insurance industry and the UN.
The PSI defines “sustainable insurance,” explaining that the concept “aims to reduce risk, develop innovative solutions, improve business performance, and contribute to environmental, social and economic sustainability.” It set forth four clear principles for the insurance industry to follow, such as developing solutions to environmental risks within the sector, and being transparent to the public on any progress made with sustainability.
Over the past decade, the PSI has continued to be referenced as a key framework that insurance industry leaders should follow as they seek to pursue sustainability. 147 companies have signed on to the PSI, signaling a strong global interest in driving environmental change.
Developing Stronger, Sustainable Policies
On a business-by-business level, insurance companies are working independently to create policies that reward sustainable solutions. Climate change has begun to impact every sector of insurance, making policies extremely costly — so insurers, MGAs, and program administrators are getting creative. By identifying climate-related risks early on, the industry is prepared to reward clients who take steps to both mitigate risk and help the environment.
For instance, policies may reward property owners and contractors who choose to build with sustainable and recyclable materials, which not only benefit the environment but can also cut down on transportation costs. Or for manufacturing companies working with hazardous materials, insurers can work out policies that reward clean waste solutions, which both cuts down the risk of an accident and protects the surrounding environment. These key solutions during the underwriting phase assist both parties financially, and contribute to sustainability goals.
Changing Internal Business Practices
Outside of policies and work with clients, there are also steps that insurance companies are taking to drive environmental change internally. In the wake of the COVID-19 pandemic, for example, many companies are encouraging staff to continue working from home, as it lessens a corporation’s carbon footprint.
Insurance companies have also begun to focus on investing in environmentally friendly industries, ensuring that long-term profit doesn’t come at the cost of the planet. Oftentimes, insurance companies will hire a relatively new position: A chief sustainability officer, or CSO, to oversee the broad management and growth of sustainability goals. Only in recent years has this position become more commonplace in major corporations, as upper management focuses on KPIs relating to reducing the company’s environmental impact.
Carriers are reducing their carbon footprint in other ways, as well. For example, Liberty Mutual is committed to a 50% reduction of global greenhouse gas emissions by 2030. The carrier aims to reach these goals by decreasing its operational carbon footprint and identifying renewable energy opportunities across its real estate portfolio. Liberty Mutual also joined the Partnership for Carbon Accounting Financials to help develop the first global standard to measure and disclose insured greenhouse gas emissions. AIG released its first ESG report in 2022, outlining how it’s aligning its sustainability efforts with the insurance group’s core business strategy. Zurich Insurance is committed to holding a net-zero investment portfolio by 2050.
These are just a few of the major ways in which the insurance agency is driving environmental change, but these processes lead the way for clients. Who knows what innovations will spring forth by the time Earth Day 2024 rolls around!