Insurers to change business models for climate resiliency
Capgemini, a technology consulting company, and Efma, a global non-profit organisation established by banks and insurance companies, have recently released their World Property and Casualty Insurance Report.
The report, which is titled ‘Walking the Talk: How insurers can lead climate change resiliency’, highlights that insurers focused on building climate-resilient business models will be better positioned to generate deeper customer trust while boosting their relevance and profitability and that addressing the impact of one of the most pressing issues in modern times on the Insurance industry.
It was found that more than 80% of individual and small commercial clients of the insurance industry are keenly aware of climate influences and have taken at least one key sustainable action over the last 12 months. However, more needs to be done to combat the detrimental effects of climate change as only 8% of insurers surveyed are insurance front runners or “Resilience Champions” (described in the report as those with strong governance, advanced data analysis capabilities, a strong focus on risk prevention and who promote resilience through their underwriting and investment strategies).
Driving sustainable investment
The report findings suggest that a “climate resiliency framework” is key to build the required capabilities within a changing risk landscape. It encourages insurers to rethink current risk assessment models, deploy risk prevention at scale, and drive sustainable investment and underwriting strategies, moving beyond exclusions and divestments, to create a resilience ecosystem.
“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks. Insurers who prioritise focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind,” said Seth Rachlin, Global Insurance Industry Leader, Capgemini.
Insurers need to recognise their role in sustainability
To conclude the report suggested three actions which could help insurers on their climate resiliency journeys whilst also boosting their relevance and profitability. First, it was recommended that insurers should embed climate resiliency into their corporate sustainability strategy with clear actions assigned to c-suite executives to ensure ownership and accountability. Second, insurers should rework their innovation approach to bridge the gap between long-term goals and short-term planning by embedding resilience across an insurance company’s entire value chain. Finally, insurers should redesign their technology strategy with product innovation, customer experience and corporate citizenship at the heart of it. This can be achieved by integrating technologies such as IoT, cloud, AI, ML, and quantum computing.
“While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognise the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market,” said John Berry, CEO of Efma.