Climate change and the insurance sector
Example of:
How insurers and brokers can factor sustainability into decision-making to address key risks and also explore potential business opportunities.
Why is sustainability important?
There has been a mixed response to sustainability from the insurance sector until recently, with little desire or need to consider these aspects within the decision-making processes. However, more recently the situation has begun to change, notably with regards to the industry’s response to the challenges of climate change. The Association of British Insurers (ABI) have published a study that discusses the challenges and market opportunities that climate change poses for the industry.
How HSBC Insurance Brokers Limited is working to embed sustainability within their decision-making processes
Key questions to help identify what to focus on include the following.
- Is your product helping or contributing to the problem?
- Do you know the embodied carbon in your products? Does this matter? Is it possible to measure it? What are the risks / opportunities in lending /insuring high carbon activities?
- Are your products and services at risk to a change in climate (temperature, rainfall, sea level rise)?
- Is there a market for new climate products? Can you create a new market?
- Who else is doing this?
- Will it really be more sustainable? What will happen if you get it wrong?
Supporting decision makers
This is a challenging and complex topic and as with the banking and investment industries, a key support factor is the provision of specialist sustainability and technical knowledge to provide staff with the information they need to make informed decisions. This support can also help to address a lack of interest amongst employees, regards sustainability, where this exists. Raising awareness is needed in order to begin the process of challenging existing decision-making processes and subsequently to identify solutions.
How HSBC Insurance Brokers Limited is working to embed sustainability within their decision-making processes
The initial driver for the organisation was an identified need to provide environment-related products and services as part of an existing business provision, in this case advising and broking Environmental Impairment Liability insurance for corporate and property transactions. Recognising the need for specific environmental expertise, the organisation recruited specialists to support decision-makers and client relationship managers. The role of this team of specialists is to act as facilitators – for both knowledge transfer and change. The initial task has been to raise awareness and to support managers in addressing potential environmental risks associated with clients’ situations and specific products. This has been achieved through ongoing engagement with a wide range of individuals from across the business and developing a specific decision-support tool that allows managers to access relevant environmental information, understand potential risk areas and identify where they may require further support. By bringing together environmental and business expertise, the team has been able to identify and address key risks and explore potential business opportunities.
Further benefits have resulted from the organisation’s active participation in external initiatives and networks. In particular, involvement in the United Nations Environment Programme Finance Initiative (Insurance Working Group) has been invaluable in being able to attain and maintain knowledge of trends, emerging issues, stakeholder expectations and best practice responses.
As part of a larger group of companies, the organisation’s progress has also benefited from an evolving Group strategy on sustainable development. Although it has been important to step up to the commitments expressed at a Group level, it was crucial to interpret the Group strategy in a way that was relevant for the specific activities of an insurance broker. Having said this, the activities of the Group sustainability team have helped to highlight the need to consider key sustainability issues within decision-making and reinforce the organisation’s specific programme.
A major component of the organisation’s evolving business case for sustainability is the potential impact of climate change, both in terms of addressing the cause and proactively responding to the effects. By bringing together the internal knowledge within the organisation, the external knowledge obtained and the team’s own expertise, opportunities have been identified to facilitate a move towards a low carbon economy (for example, providing specific services for low carbon technologies and influencing behaviour by ‘greening’ mass market products) and to respond to the risks of greater climatic uncertainty (for example, influencing the development of natural catastrophe risk modelling and exploring the potential for micro-insurance to protect the most vulnerable to climate change). Opportunities include both the modification of existing products and services and the development of new ones.
The past three years have focused on raising awareness within the business to enable managers to understand key issues and make better decisions with regards environmental risk. The next three years will see a transition towards building knowledge to enable opportunities for more sustainable products and services to be identified and developed for customers.