Green insurance: A commitment to sustainability
The industry is integrating climate risk into underwriting and investment decisions, developing green insurance policies, and leveraging data analytics to better predict and manage risks
CLIMATE change is a global, undeniable, and complex challenge that is reshaping our world. Tackling it is a global effort that involves both adapting to its effects and mitigating its causes, primarily by limiting global CO2 emissions while supporting the green transition.
There is a strong sense of urgency – the frequency and severity of extreme weather events has already significantly increased in recent years, resulting in vast economic losses worldwide. Specifically, climate-related disasters have had a notable impact in various regions, including the European Union (EU) and China.
The insurance gap also remains significant, with 62 per cent of the estimated US$280 billion in global economic losses in 2023 being uninsured, according to Swiss Re Institute.
In the face of the global climate challenge, nations are setting long-term goals and framing new regulations to support the fight for a better future. For instance, the EU aims to achieve climate neutrality by 2050. This objective is central to the European Green Deal, a strategy designed to reduce emissions while promoting sustainable growth.
Legally binding under the European Climate Law, this goal targets a 55 per cent reduction in emissions by 2030 compared to 1990 levels.
The law ensures that all EU policies contribute to these goals, promoting fairness and solidarity among member states. This long-term carbon-neutral goal is supported by a comprehensive regulatory framework, including the EU Taxonomy for Sustainable Activities, the Corporate Sustainability Reporting Directive, the Sustainability-related Disclosure in the Financial Services Sector, and the Corporate Due Diligence Directive.
Over the past years, China has made significant strides in sustainability, focusing on environmental protection and climate change mitigation. China’s ambitious climate goals, including achieving carbon neutrality by 2060 and peaking carbon emissions by 2030, reflect a broader strategy to foster a sustainable future.
These efforts are part of a global movement, with over 140 countries setting net-zero targets, covering about 88 per cent of global emissions. International frameworks, such as the United Nations Environment Programme Finance Initiative and the Forum for Insurance Transition to Net Zero, are crucial in accelerating climate action within the insurance industry, developing net-zero metrics, and fostering solutions for the net-zero transition.
Challenges and opportunities
The global green transition presents both significant opportunities and obstacles for the insurance industry. As the world shifts towards a greener and more equitable economy, the insurance sector must adapt to this evolving landscape. A primary difficulty lies in establishing a universally accepted definition of “green”, which is essential for creating consistent standards and practices across the industry.
Without a clear definition, accurately assessing and managing risks becomes difficult. Additionally, the emergence of new risks associated with advancing technologies, such as renewable energy and carbon capture and storage, poses further complexities. Insurance companies must continually gather new data and refine their risk assessments to stay ahead of these developments, ensuring that they provide accurate coverage and maintain industry stability.
Despite these hurdles, the green transition also offers substantial opportunities for insurers to play a pivotal role in closing the protection gap, enhancing the resilience of businesses and fostering sustainable development through investments.
The key is to support clients through a combination of solutions and services that empowers them to adapt to climate risks and plan for the future. One such opportunity lies in emerging industries that are integrating into the green economy. By offering tailored insurance solutions and investing in the development of adaptation technologies, insurers can facilitate the growth and success of these industries.
Furthermore, the insurance sector can foster risk reduction by offering dedicated loss prevention services and educating clients about risk management within the context of the green transition.
This involves providing resources and advice to clients to help them recognise and mitigate risks, nudging them towards behaviours that contribute to a low-carbon future. For instance, insurers can encourage the installation of solar panels or the creation of flood defences, both of which promote sustainable practices.
Insurers can also offer specialised insurance solutions that provide needed coverage in the case of natural disasters. Examples include parametric insurance products, which give quick payouts based on predefined triggers such as wind speed and level of rainfall to cover losses more efficiently and accelerate recovery.
At Generali Group and Generali China Insurance (GCI), we channel funds into green and low-carbon industries, supporting the green transition while avoiding high-pollution sectors to align with our sustainability commitments. Furthermore, in China, GCI leverages the global green transition to drive high-quality development, addressing extreme weather events with innovative insurance models and supporting financial inclusion programmes.
Committed to net-zero emissions by 2050, Generali invests in renewable energy and collaborates with governments to foster financial literacy.
Call for global efforts
Climate change is reshaping our world, coupled with shifting demographics, workforce dynamics, and longer life expectancies, which are all placing growing pressures on social security systems and healthcare infrastructure.
The insurance industry, with its capacity to invest, manage risk and innovate, has a significant role to play in this context.
Insurers must adapt and innovate, recognising that sustainability is crucial for long-term profitability and growth. The industry is integrating climate risk into underwriting and investment decisions, developing green insurance policies, and leveraging data analytics to better predict and manage risks.
As an example, GCI is fostering a sustainable future by developing policy-driven products tailored to the unique features of the Chinese market, such as index insurance and liability insurance based on electricity usage pricing for green buildings.
Despite this, there are significant opportunities for insurers to lead in combating climate change. By promoting resilience and adaptation, insurers can help businesses and communities prepare for and recover from climate impacts. Public-private partnerships can amplify these efforts, combining resources and expertise to drive large-scale change.
The writers are CEO Insurance and chief sustainability officer, Generali Group, respectively
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