August 2021
In spring 2021, BearingPoint conducted a survey with experts from the insurance sector on the topic of Sustainable Insurance focused on the Swiss market. Our intention was to better understand insurers’ sustainability ambitions and identify their related key challenges. Responses from over 50 participants were analyzed.
We asked for the driving forces behind sustainability engagements, the defined goals, and main activities in this field. Furthermore, we identified major challenges as well as the key areas of attention to drive the sustainability transformation. As promised, for each participant of the survey, one tree was planted via Treedom to emphasize our commitment towards a sustainable world.
Understanding the case for change
Sustainability considerations are increasingly moving into the focus of the financial service industry for a plethora of reasons:
- Environmental challenges such as climate change, loss in biodiversity or the depletion of natural capital endanger ecosystem services and economies
- Change in the mindset of clients towards a more sustainable behavior put the customer retention and life-time value as well as the reputation at risk
- Regulatory pressure (e.g. MiFID, EU taxonomy) force companies to adjust their product offering, reporting and disclosure
Sustainability considerations are increasingly moving into the focus of the financial services industry for a myriad of reasons: Environmental challenges, regulatory pressure and change in mindset of clients towards more sustainable behavior. Our study identified the driving forces behind sustainability engagement, the goals and the main activities to become a sustainable insurer.
Claudio Stadelmann, Partner at BearingPoint
The driving forces: Insurer’s sustainability engagements are mostly spurred by environmental risks, reputational issues as well as client demand.
Climate change is generally considered one of the biggest threats to our society. Therefore, it is encouraging that the main driver of engaging in sustainable activities turned out to be environmental risk.
What are the main drivers for your engagement in the field of sustainable insurance?
Employees’ perception of their company’s maturity in terms of sustainability vs. reality differ significantly.
While the role of reinsurers in society have primarily been to identify, model, and manage risk, it is reassuring that the discussion is no longer only about the increased risk with climate change, but how insurers can proactively advance efforts to address it. However, our survey shows that insurers do not take sufficient action, and interestingly that employees' perception of their company´s maturity in terms of sustainability vs. reality differs significantly.
Which priority does the top management of your organization give to sustainability related topics? Do you agree that insurers and reinsurers sufficiently use their possibilities to support a more sustainable world?
In numbers, 3 out of 4 (re) insurers confirm that sustainability is a strategic priority. However, only 1 out of 5 attests that their firm’s possibilities are sufficiently utilized. In order to achieve a sustainability transformation in time, companies need to move fast. Not only the reputation is at risk, but in fact the bottom line.
This insight triggers the question what insurers can do to increase their contribution to a more sustainable world? Insurers are advised to take a broad approach on managing sustainability risk and opportunities: they need to look suggestively on the underwriting portfolio, adapt product offering, measure and reduce the emissions from the own operations, and offer transparency around climate related risk.
Reduction of C02 footprint is a top priority, followed by customer-centricity and product/ investment portfolio diversification
When asked about what the organizations’ long-term sustainability goals are, our survey shows that the reduction of C02 footprint is top priority for 46% of the insurers, followed by customer-centricity and product/ investment portfolio diversification.
As an insurer, what are your organization’s long-term sustainability goals?
Based on their powerful position as risk-managers and major investors, insurers play an important role in reducing green-house gases by steering their capital towards sustainable endeavours.
They can contribute in several ways – e.g. consider CO2 footprint during their own investment decisions, make investment portfolios carbon neutral and design insurance products in way that they incentivize or even force policy holders to act more sustainable and environmentally friendly. Moreover, insurers should have ambitious CO2 targets and measurements in place.
Product innovation, data and behavioral change dominate the sustainability agenda of insurers
The fact that product innovation dominates the sustainable agenda is promising since it goes hand in hand with an increasing demand for greener products from a customer perspective which in turn represents a great opportunity for insurers to venture into new customer segments.
What are your main activities to reach these goals?
- 26% of (re) insurers put their efforts into innovating their product offering to achieve a greater client centricity and better serve the needs
- 23% of the interviewees indicate that the exploitation of relevant data, KPIs and monitoring are one of their main activities to utilize the vast amount of available ESG data
- Eventually, the change of internal behavior is relevant for at least 21% of the companies
Achieving more client centricity and becoming data-driven are cultural transformations itself for most organizations. The shift from a product-centric innovation approach to a client centric innovation approach means developing an organization-wide capacity to think deeply and analytically about the biggest challenges that customers and markets need to solve now and in the future. Analyzing customer data is essential to understand the behavior and needs and increase customer centricity in the innovation process.
Likewise, efficient use of data is critical in the core ESG context to measure and track the sustainability activities and comply with existing standards such as the EU Taxonomy or the Sustainable Finance Disclosure Regulation. Companies must structure and analyze their existing data to identify and close data gaps for monitoring and reporting on regulatory criteria.
Based on this, sustainability endeavors can be communicated internally and externally in a transparent and credible manner. This includes:
- Evaluation of products, services, organization and procedures
- Product innovation and development
- Adjusted investment rationale and processes
Such communication activities also benefit the required cultural and behavioral shift. Relevant components to consider are fostering experimental thinking to support innovations, developing broad data literacy and promoting stamina to tackle the long-term challenges of a sustainability transformation.
Challenges & key levers for a transformation towards a sustainable business model
Challenges
Insurers face both internal and external pressure to drive the sustainable agenda. The main challenges are: an unclear business case/ shareholder objection (15%), client pressure (17%), lack of data (18%) and internal resistance (28%).
In the presence of an unclear business case and the belief that sustainable initiatives yield in limited economic value, there is – as pointed out in the survey – likely going to be internal resistance towards sustainable initiatives. To change the perception of skeptical decision makers, it will be crucial to prove that sustainability and financial success can be mutually benefical. How can we change the perception of sustainable initiatives to being a wise financial strategy, rather than a trade-off?
We may argue that making a switch to sustainable practice provides the opportunity to question the way the organization operates, and an opportunity for new innovative ideas to grow and transform into new business opportunities. Also, the cost of not taking action should be considered, i.e. loosing future business in a more challenging world, and the costs for social & economic damage that might come through climate change in a few years.
Key levers
The successful transformation towards a more sustainable business model depends especially on strategy, data and people.
Which field of action do you think your organization needs to focus on in order to transform towards a more sustainable business model? (listing of top 5 areas only)
For a successful transformation insurers need to articulate a clear ambition for the sustainable agenda which is translated into the business strategy and identify steps to incorporate it into the operations.
To enable the execution and increase employee engagement it is decisive for leaders to support the agenda, ensure the availability/ acquisition of the required skills and design processes that support operational changes to keep additional efforts in daily operations to a minimum.
In addition, the right governance models should be in place with appropriate practices, controls and procedures that favour sustainable activities. In this context, appropriate incentive models must be in place that do not only reward short-term performance improvements, but sustainable structures and approaches that ensure a profitable and ESG compliant business in the long run.
Creating a competitive advantage
The results of our survey are unambiguous. (Re) insurers want to achieve a sustainability transformation, however only few know how to manage it.
- Strategy: Clearly, companies need to understand what their clients want in terms of green products and customize their offering accordingly to create a competitive edge. Therefore, the organizational purpose needs to be aligned with the strategy and the business model.
- Data: Data analytics are crucial to navigate through the massive ESG data jungle in order to measure the right indicators, set the appropriate targets and achieve ambitious goals.
- People: Only by overcoming obstacles within the own organization, companies can accelerate and take a leap in the right direction. Therefore, it is paramount to engage, collaborate and advocate change by deploying the right approach of change management.
Contact us for more information
Our experts are here to support you on your journey towards a sustainability transformation. We support our clients in various areas of the sustainable value-chain such as:
- Strategy (CSR Strategy & roadmap definition, sustainability strategy, e-mobility strategy, responsible AI strategy)
- Operations (Sustainable supplier management & sourcing, waste reduction & circular economy, efficiency & performance improvement)
- Data (Monitoring & Reporting, Regulatory, Sustainable Finance Framework & green investments, emissions calculator and climate dashboard development)
If you are interested in how sustainability and other trends will change the future of the insurance industry, we recommend the BearingPoint report "Vision 2030 - Insurance Switzerland" (in German).
