Insurers have an important role to play in sustainability, not only in terms of their own businesses and employees, but also in supporting their customers as they transition to a more sustainable future. Insurers are looking at how they are exposed to transition risk, but it is also important to talk about transition opportunities, where insurers help support their customers with the change that will be required. Insurers can help customers navigate this transition and aspire to make this as seamless as possible through risk engineering insights and product offering.
Sustainability is not just about addressing climate change. Through internal and external feedback, including that of investors, employees and customers, Zurich identified three pillars that prioritised our most material environmental, social and corporate governance (ESG) challenges – and we believe these pillars should underpin an insurer’s sustainability strategy. Through these pillars – supporting the transition to a low-carbon economy (at Zurich we refer to this as ‘Our 1.5˚C Future’), confidence in a digital society, and workforce sustainability – we have made a strong sustainability commitment to all of our stakeholders.
Our 1.5˚C Future
We expect to see a fundamental shift in the way our customers operate as they address sustainability in general and the need to move to a low-carbon future. As an insurance company, we need to anticipate these changes and ensure that we have the products and services in place to support our customers with their transition.
Companies cannot immediately cease using carbon-intense ways of operating and switch to using renewables. We are in a transition phase – some customers are investing heavily in R&D to develop alternative fuel options, while others are taking mitigating actions, for example around carbon capture, as they move to a low-carbon future. Most insurers took a decision regarding the coal and oil sands industry but in other areas, perhaps an alternate approach can be taken. Insurers need to support customers – companies can only make the transition if they are able to operate, and they cannot operate without insurance.
As insurers, we need to understand and mitigate the risks associated with climate transitions for our customers and ensure that internally we understand how it impacts our underwriting business and the services that we provide. To understand our potential exposure to transition risk, we are looking at the carbon intensity of our underwriting portfolio as an indication of where significant transition will happen during the next decade, educating our underwriters around how these changes may impact the transfer of risk, and aiming to ensure continuous dialogue with customers around sustainability.
The second pillar ensures people and organisations become more resilient by enabling and inspiring confidence in a digital society, which includes protecting their data. As cyberattacks and data fraud become more frequent and concerns rise about the ethical use of artificial intelligence, insurers have a role to play in helping organisations stay ahead of cyber threats, developing protection through cyber products, and committing to customer data security.
Insurers need to be offering a suite of risk transfer, risk engineering and continuous cybersecurity assessments, helping organisations to develop and maintain an effective cybersecurity programme that goes far beyond traditional risk transfer.
The third pillar focuses on the future of work and how rapid industry transformation requires new skills and capabilities in order to meet changing customer and workforce expectations. Our objective is to empower our people to become fit for the future and take ownership of a lifelong approach to learning. For example, we have a commitment to prioritise employee development and upskilling over external hire and to reject unsustainable behaviour, together with striving to offer different career choices that match talents and ambitions.
Externally, we offer customers and brokers innovative, versatile and practical training programmes, in the form of our Global Broker and Customer Academies. Further, it is also about helping customers in terms of the products we are developing in the accident and health line of business to support gig workers, as well as corporate pensions and life assurance products to fit the changing needs of not only today’s workforce but that of the future.
What this means for customers
Customers should expect sustainability to become part of the discussion with brokers and underwriters when they are looking for insurance products. Once we as insurers understand what customers are changing and the measures they are putting in place to meet those sustainability objectives, then we can further develop products to address those issues.
Customers are at different levels of understanding when it comes to the impact of sustainability, so it is about considering the nuances for the customer. Those customers in carbon-intense industries will clearly have greater focus on reducing emissions, while a company with people as its main assets will tend to focus on workforce sustainability. Ultimately, we as insurers can help customers understand what it means for their business, because we understand the risk.
Sustainability can be an emotional subject; as such there is a need to set rational targets using a logical approach to help put emotion to one side and demonstrate true commitment. Companies want to give confidence to regulators and investors, as well as employees and consumers, so for example, when targets around climate change are discussed, they should be science-based and aligned to the temperature goal of the Paris Agreement. Unlike traditional corporate targets around short-term financial goals, sustainability calls for long-term targets, for example, over a period of ten or more years, and it is especially important to ensure the targets measure the relevant behaviour needed to meet ambitious goals. Furthermore, the way the measurement develops and changes with time needs to be understood before setting targets, and therefore robust performance indicators take time to develop.
Resilience and sustainability
A colleague’s analogy to explain the importance of resilience is to look at a bamboo hut – it can be considered sustainable, but it is not resilient. When you look at sustainable products, some can cause greater risk – for example, a living/green wall if dried out could become a fire risk. As companies build and adapt to become more sustainable, we as insurers can provide advisory services to support them so that they are also resilient, by developing a comprehensive resilience strategy that includes physical and organisational measures, in addition to risk transfer.
Sustainability, whether it is environmental, digital or workplace, is evolving and the need to address the associated risks is becoming more urgent. But whereas other types of risk impact an industry or a specific location, sustainability risk impacts across all industries and regions. If insurers commit to sustainability, it is not just a benefit for the insurance industry, it is a benefit for all industries. And by doing so, insurers are not only protecting customers, but also employees, shareholders, future generations and, perhaps most importantly, the planet.
For more information see www.zurich.com/en/products-and-services/protect-your-business/commercial-insurance-sustainability
Contributed by Gabrielle Durisch, head of sustainability and head of claims strategy and analytics, commercial insurance at Zurich Insurance Group
Commercial Risk is running a webinar, led by sustainability and resilience experts from Zurich Insurance, on ‘How commercial insurance supports a sustainable future’, on 12 November 2020 at 15:00-16:00 GMT. For more details and to register for this free webinar, please go to: www.commercialriskonline.com/webinars/#sustainable-future