How the insurance industry is enabling and encouraging sustainable choices

Awareness of sustainability issues and environmental impacts is at an all-time high. Retail consumers are increasingly looking to businesses to help them make a difference.[1] Similarly, the commercial sector looks to their insurers to provide economic resilience combined with sustainable solutions.

Insurers have a key role to play in helping to promote more sustainable approaches among consumers to improve climate resilience. Insurers can support policyholders to help homes and businesses adapt and become more resistant to and resilient in the face of environmental perils. In this section, we explore some of the ways in which insurance providers can offer underwriting products that encourage sustainable choices and outcomes for the buyers of insurance. We also set out opportunities for policy interventions that can help the insurance industry build robust knowledge and capabilities in this space, whilst empowering the move towards increased environmental resilience.

Encouraging climate adaptation through resilient reinstatement

Insurers have a role to play in promoting sustainable approaches to climate-resilience, for example, in reducing the impacts of physical, climate change-related events such as flood, wildfires and tropical storms. Insurers can support policyholders in making their homes and businesses more resistant and resilient to environmental perils; however, this is not currently the norm. There are obvious benefits for insurers in this action – more resilient infrastructure, buildings and homes reduce the value of future claims. Likewise, it is beneficial to customers for protecting their properties and livelihoods. Resilient reinstatement, as these measures are collectively termed, is an emerging concept that is increasingly gaining acceptance across the insurance industry. The following are ways in which insurers support sustainable choices on the part of policyholders.

Collaborate in using industry data to form an evidence base for the value of resilience measures

There is a lack of confidence on the part of some policyholders and professionals regarding the extent to which recoverable measures will deliver desired outcomes. Regardless, there are research providing evidence to support the benefits of resilience and show the effectiveness of community-based resilience measures through case studies.[2,3] The challenge is that there is insufficient translation and communication to practitioners and policy makers in a concise, systematic and quantifiable manner. With better forms of evidence base available and accessible to decision makers, this may unlock the opportunity to foster evidence-based decision making and offer lower premiums where resilience measures have been taken, thus further incentivising uptake of such policies.

Communication on resilience measures and their benefits, thus driving the normalisation of resilient reinstatement

Success of integrating resilience reinstatement measures will be dependent on raising awareness of the climate-related risks faced by demand side households and businesses within the supply chain and influencing social attitudes and acceptance towards resilience measures. Communicating the benefits associated with resilient repair to policyholders can be challenging; some will take a long view and seek greater resilience, whilst others may focus entirely on minimising the immediate disruption to their households or businesses.

Choices around enhancing resilience can be made at multiple points, both before and after an event. The inclusion of resilient measures prior to an event, or in recovery, can be facilitated by clear understanding on the benefits of resilience as well as the cost of inaction. All stakeholders – including surveyors, loss adjustors, contractors and all parts of the supply chain - must be informed and educated about the benefits of resilience measures in order for the implementation of resilient reinstatement to be effective.

Resilience measures working in conjunction with policy

Government can embed resilience education to the industry through complementary policy. Take building industry for example: policy measures could be revising local building codes to normalise resilience as a building construction and an insurance industry default in areas at risk. Research found that 51 percent of houses in Paradise, California built with the state’s updated 2008 building codes survived the 2018 Camp Fire; by contrast, only 18 percent of houses without the updated building codes survived.[4]

The Insurance Information Institute’s paper ‘Fighting wildfires with innovation’ identifies a number of ways in which US insurers are working to help educate individuals and communities on the steps that they can take to reduce the destructive potential of wildfires. This includes actions such as: building back to newer and higher building standards, maintaining defensible space to reduce the likelihood of ignition from wind-borne embers or surface fires e.g. by clearing dead vegetation, removing plants within five feet of a structure and undertaking home-hardening measures through incorporation of fire resistant construction materials (e.g. fire-rated roofs, use of metal screens in vents and tempered glass windows). Chubb employs a team of risk consultants trained in wildfire prevention and mitigation techniques to meet with customers and to provide advice on property protection.

Sustainable claims

Claims servicing can constitute a significant source of emissions within insurers’ own supply chains; servicing of claims can lead to waste or ongoing emissions through carbon-intensive energy consumption. Sustainable claims solutions are those that seek to minimise ongoing carbon emissions through energy efficient practices and waste reduction, for example, by encouraging repair instead of replacement and use of recycled rather than new parts.

From 2021, household appliances including TVs, lighting and large white goods will become easier to repair due to new ‘right to repair’ standards being adopted across the EU under the Eco-design and Energy Labelling Directive.[5] This aims to make it easier to fix household electrical goods, make spare parts available to extend their life, encourage longer product lifespans and ensure that products are designed with dismantling and / or repairability in mind, therefore reducing waste. There is potential for such an approach to be extended beyond household appliances to vehicles, which would help promote a “repair over replace” philosophy in the motor industry.

Enabling and encouraging sustainable choices

• Tokio Marine Group’s Japanese operations promotes environment-conscious auto repairs following accidents, by asking policyholders for their consent to use recycled auto parts. In October 2011, the General Insurance Association of Japan set up an industry-wide declaration to promote the use of recycled parts. Nichido Fire also offers “Asante” (thank you in Swahili), an auto insurance policy which provides a 10% discount on insurance premiums if a car is repaired using recycled parts at one of the specified repair shops.
• RSA Insurance Group encourages a ‘repair over replace’ policy across claims. For example, they have worked with suppliers such as Autoglass to carry out over 40,000 windscreen chip repairs a year, avoiding 1,500 tonnes of carbon emissions and 540 tonnes of waste glass going to landfill.
• Hiscox works with AnyJunk in the UK, to take away waste arising from claims. AnyJunk uses smart technology to partner with local waste collection companies to provide a low carbon footprint and environmentally responsible clearance service for bulky waste.
• Tokio Marine Kiln uses drones to assess damage during large natural catastrophe events, such as wildfires and hurricanes, when loss adjusters are unable to physically access these areas. This enables the company to pay claims early, and also helps communities to rebuild faster, whilst reducing the environmental impact of loss-adjustment.

Policy opportunities

In terms of supporting the insurance industry in incentivising and encouraging sustainable choices and behaviours on the part of buyers of insurance, whether households or businesses, we have identified the following areas in which policy can play a crucial role to create a level playing field:

Provide public or enable public-private funding mechanisms to cover resilience measures which enable and incentivise households and businesses to make sustainable choices to improve societal resilience.

Mandate the inclusion of relevant resilience measures in insurance policies that address climate-related disasters.