Just how crucial is the social element of ESG to building a sustainable future for inclusive insurance?
The past few years have seen the world’s stability tested in more ways than one, from the ongoing consequences of climate change to the impact of the pandemic. For many in the Western world, the devastating blows of these events have been cushioned by financial support, such as insurance and access to furlough schemes, allowing businesses to survive and economies to grow.
It has, however, been an altogether different reality for vulnerable communities in Africa, Latin America, emerging Asia, and pockets of the Middle East, where financial security is often inaccessible, preventing any ability for low-income households and businesses to ‘bounce back’ or ‘build back better’.
As highlighted during our recent June Members’ Meeting (JMM), there are many reasons behind this lack of financial support; from political instability, right through to a lack of both trust in insurance and product awareness, which has a direct impact on insurance uptake.
With the world on the cusp of an environmental crisis, it is crucial that insurers work towards changing these attitudes and outcomes, and to focus on closing this people protection gap. To succeed, it needs to deliver sustainable and inclusive insurance, not only to ensure global financial stability, but to ensure stability for the sector too.
As Katharine Pulvermacher, Executive Director of the MiN stressed during ADA’s recent panel discussion on Sustainable Insurance: a meeting of two worlds held in Luxembourg earlier this month: “Insurance is pivotal to economic growth, development and social stability. Insurers who actively support financial inclusion are ensuring the future of insurance.”
One way to achieve such global financial support and inclusion is for insurers to incorporate Environmental, Social and Governance (ESG) standards within their business operations. For insurers, this can be achieved by developing accessible and affordable insurance products for those most vulnerable and on low incomes, otherwise known as microinsurance. With greater uptake of these services, incomes are protected and the emerging middle class remains stabilised, in turn creating a more sustainable and resilient world.
The power of partnerships
The drive to deliver on these actions has seen a flurry of developments and initiatives throughout the global insurance sector over the past few months, all of which have a focus on the social and sustainable aspects of insurance.
The Global Risk Modelling Alliance (GRMA), which was launched at the Insurance Development Forum (IDF) Summit in June 2022, is one such example. Set up by the IDF and V20, the GRMA aims to help vulnerable countries access climate and disaster risk insight through open-source risk platforms, risk management tools, operational risk finance expertise and data. By doing so, these vulnerable countries can assess their risks and put in place the right strategies that will not only allow them to build greater resilience, but will help them address their protection gap too. To date, the GRMA is already providing concrete action on the ground with its inaugural Ghana flood protection project.
Another partnership in the spotlight – and one that was discussed during the Looking Ahead session during our 2022 JMM – is the G7’s declaration to structure a global shield against climate risk. With a focus on building a coherent and systematic system to ensure that tools, such as modelling systems, are being fully capitalised for the benefit of the people, the global shield is all about connecting local efforts to global initiatives. As Ingrid-Gabriela Hoven, Managing Director, GIZ commented, inclusive insurance will play an important role within this global shield.
Despite coming from different sectors and organisations, these initiatives all share a common theme: working together. The importance of such collaboration is key and not something which should be overlooked. As another panellist Pratibha Thaker of The Economist Intelligence Unit, explained, “Markets are shifting gears every day; the world is not about East and West. It is about globalisation.”
A decade of action
This focus on working together while embedding ESG into the heart of business decision-making was a focal point during the UN-led Principles for Sustainable Insurance (PSI) event held in Switzerland last month, which saw PSI members from around the world come together to share their insights and actions from what has been coined as the UN’s Decade of Action.
Setting the tone of the world we live in, Ken Ofori-Atta, Minister of Finance in Ghana and chair of the V20, stressed that only by instigating “technological and financial innovation” can “enterprises be protected from future shocks.” And thankfully, it seems the global insurance sector is listening.
Caesar J. M. Mwangi, CEO of ICEA LION Insurance, for example, explained how the Nairobi Declaration on Sustainable Insurance is encouraging African insurers to commit to ESG practices, not only by offering the younger generation long-term job opportunities, but by encouraging people, businesses and corporations to stop partaking in projects which have a detrimental effect on the environment and future of the planet.
Further examples of how the industry is encouraging – and achieving – sustainable business operations was shared by Dyogo de Oliveira, President of CNseg, who explained how 60% of insurers in Brazil are now integrating ESG into their operations, the most successful of which has been the roll-out of climate risk heat maps, which reveal the financial impacts certain risks can have on businesses.
In Costa Rica, insurance policies are helping pave the way for strengthening climate action, as can be seen with The Costa Rican Insurance Sector Protocol for Responsible Business Conduct, which aims to help businesses meet several of the UN’s Sustainable Development Goals (SDGs).
Prevention is better than cure
One of the most ground-breaking outcomes of the PSI conference, however, was the launch of the guidebook Managing ESG Risks in Life and Health Insurance Business. Developed with HSBC Life, the guidebook aims to help life and health insurers align their business and underwriting risks with ESG standards and sustainability objectives.
Understandably, with a surge in demand for life and health products, the pandemic was a main driver behind the guide, and as Moira Gill, Associate Vice President for Environment, Government and Industry Relations at Canada's TD Insurance pointed out, it provided a golden opportunity to have discussions and build awareness on mitigating health risks.
Furthermore, Chad Park, Vice President of Sustainability and Citizenship at The Co-operators group in Canada explained that in most cases, insurers underwrite factors, but don’t look at their underlying causes. “We should be thinking about what interventions insurers could take to prevent those factors… and use insights to help extend our view of the causes and effects of health and life insurance,” Park said.
The guide places a stronger emphasis on SDGs from a life and health point of view, such as wellbeing and eliminating poverty, and how when mitigating health risks, prevention is – in the long run – cheaper and more sustainable.
“As such, the value of the guide is that it helps identify and prioritise goals, objectives and ESG factors; but importantly it provides factors to think about, such as ageing populations, soil and water pollution, neurodiversity, demographics, lifestyle, and emerging factors,” Amita Chaudhury, Group Head of Sustainability at AIA, said.
New digital horizons
As these partnerships, initiatives, publications, and global projects highlight, the insurance industry is moving in the right direction when it comes to supporting and creating a more sustainable world - but in truth, we need more speed.
Thankfully, the push to go digital in all aspects of insurance business – a move accelerated by the pandemic – has opened up a world of opportunities to help deliver more sustainable products. These range from options offered through mobile phone networks and internet communication services, such as WhatsApp, to the use of digital apps, which can solve problems over digital identity, security and reliability.
In essence, the time has never been better for insurers to harness opportunities presented by the tech revolution, without losing sight of the importance of the human touch, to ensure that those most vulnerable can finally access that financial safety net they require.
Several large insurers, such as Allianz, are using technology, to distribute products. The company is also actively encouraging individual businesses to take ownership of microfinance business solutions, delivering financial education, and investing in start-ups aimed at serving those countries and communities in need. And its approach seems to be working, with 62 million emerging customers now with access to their own financial safety net.
But the industry cannot conquer this alone; to succeed it needs a combination of having the right regulatory framework in place to allow insurers to enter new and emerging markets and for microinsurance to figure in the policy agenda for governments around the world. In short, political buy-in will be important to continue facilitating change.
As Katharine Pulvermacher summed up, “To be change agents we need to be optimistic, stubborn, diplomatic, and respected. Each of us needs to take on the responsibility, to help build that trust so people can have confidence in insurance. It is time for insurers to put the S back into ESG.”