Insurance sector – especially brokers – must lead ‘stewardship’ of net zero transitions

The insurance industry – and especially brokers working in partnership with insurers – must embrace the “notion of stewardship” around progressing net zero transitions because “the insurance market could be a larger force for good at driving the world into a more sustainable way”, according to Jamie Althorp, insurance lead for UK and Ireland at professional services firm Accenture, and Kenneth Saldanha, the company’s senior managing director for insurance.

Speaking exclusively to Insurance Times, Althorp explains that the insurance market can approach supporting the UK’s journey to net zero carbon dioxide (CO2) emissions in three key ways – through the delivery of claims, sustainable investing and insurance firms’ own bids to reduce their operational carbon footprint.

This last point, however, is the least impactful, adds Saldanha. The majority of the insurance sector’s affect on net zero transitions will be “through the portfolio they underwrite and their investment work”, he notes.

Saldanha continues: “Really, it is around this notion of stewardship as an insurance company. How do you steward this issue through your investments and through the business?”

Agreeing with Saldanha, Althorp says: “The insurance market can probably do more in driving overall sustainability for [its] customers.

“Insurance has always been an industry that’s allowed people and businesses to grow and flourish. I think everyone will now accept that you need to grow and flourish in a sustainable way.

“I personally believe that the insurance market could be a larger force for good at driving the world into a more sustainable way.”

Brokers’ elevated role

Brokers are pivotal to the insurance sector’s stewardship of sustainability and net zero ambitions, Accenture’s experts agreed.

“There’s a huge role for brokers to play, alongside carriers, on the stewardship point,” Saldanha says.

This is because brokers are ultimately the ones advising end clients where to place their business, so how they present carriers’ propositions and their steer to focus more on environmentally friendly policies and firms could determine where potential insureds want to place their premiums.

This “elevated role” of brokers to take client conversations “beyond the pure pricing discussion” could make “an enormous difference” in achieving net zero in the UK, Saldanha explains.

He continues: “Brokers play a huge role here. If you think about the stewardship point of saying ‘this is about what we write and how we invest’ - brokers play an enormous role in that decision-making process.

“If they would partner with insurers to say ‘let’s jointly take the stewardship angle on this and start to elevate [conversations] beyond the pure pricing discussion, to say [to clients] ‘these are relevant and credible measures you should look at’ and how they present the various options back from carriers - it makes an enormous difference.”

Althorp feels that Lloyd’s will lead the way in these types of client discussions.

He adds: “At the moment, brokers will have repositories of information around where to place business - be it the rating, the organisation, where they’re located, the capital, etc. And some of them are now looking at adding sustainable, green elements into the criteria.

“But often, it’s not just the broker - it’s also what the client wants to buy. So, it’s the broker’s advice to the client about how green their insurance buying may be.”

Data divide

Saldanha emphasises that at the heart of the sector’s net zero transition stewardship should be cold, hard metrics that can identify and track carbon emissions – this ensures that a “very complex” industry-wide ambition has “a very clear” and universal measure to report against.

“The first and most important step towards this stewardship of [helping to] create net zero is really around measurement,” Saldanha explains.

“There’s a number of startups and analytics firms that are driving robust and credible measurements of truly what is the net zero contribution versus the classic greenwashing idea.”

This physical data is what will help inform and reassure the insurance industry as it starts to step away from covering fossil fuel projects or more carbon heavy industries.

Saldanha says: “If you go back 10 or 15 years ago, when there were capital constraints and there was a discussion about how we needed to think about risk-based capital - at that time, the immediate resistance from the traditional industry was ‘oh, we can’t walk away from that revenue’.

“On some measure, whether it was profitability or revenue, you could justify staying in every single segment.

“What we’re really pushing - and what we see clients starting to really move towards - is let’s agree that we have a credible measure for CO2 and once we do, we can get away from the Boogeyman.”

Althorp agreed that Saldanha was “spot on” here.

He adds: “It’s impossible to make decisions unless you’ve got the data to help get the insights to drive those decisions. The data, it’s not there at the moment - it will be there [though].”

A symbiotic industry

Although the need to address climate change is closing the door on insuring fossil fuels and related projects, the window of opportunity around the renewable energy market is widening.

Saldanha is seeing plenty of capacity around these new lines of business because insurers are viewing renewable energy products as a “revenue growth area”, despite the fact there is no loss history data waiting in the wings to inform decision-making.

Althorp agrees, noting that “certain companies [are] saying that they won’t insure certain industries”, which is “going to have a huge impact on those industries [and] absolutely make them think about how they operate in the world going forwards”.

On the flip side, Accenture is working with a client at the moment to launch a product for electric vehicles – Althorp explains that more firms are using a sustainability focus “as a competitive advantage to get people to use them, to buy their products”.

“We’re [going to see] more of that going forward,” he adds. “The world is changing more rapidly than I’ve ever seen [before] in my lifetime and I can only see more of this going forward rather than less.”

Althorp continues: “Insurance is a symbiotic industry - it will move with where industries are going.

“Industries can’t operate without insurance. You can’t put that amount of capital into some of these big renewable projects [without protection] and, therefore, insurance needs to play its part to allow that to happen.

“If a market demands it, the [insurance] market will find a way to make it happen.”