The insurance industry has a central role to play in building climate resilience and supporting the transition to a more sustainable economy. Over the past two years, the sustainability agenda for insurers has continued to evolve rapidly.

Implementing sustainability is both a necessity and a once-in-a-generation opportunity for insurers. Many of the biggest opportunities to build new revenue streams are climate and sustainability related — from developing new products and solutions for clients to building climate resilience and supporting the scale up of renewables, clean tech, and the carbon markets. For example, claims fulfillment represents one of the biggest opportunities for insurers to make a real-world impact today. Often overlooked in insurance sustainability conversations, claims are a major source of emissions and should be treated as a high priority action area.

There is a broad spectrum of approaches, appetites, and maturities across the industry. However, most companies have moved from asking, “what do we need to do and why?” to “how do we do it and when?”. The wheels of change are in motion and some have made significant strides in embedding sustainability into their business models and corporate culture.

What follows is The Sustainable Insurance Roadmap, a practical guide to help insurance leaders assess risks, build climate resilience, capture ESG data, benchmark with peers and learn best practices for sustainability strategies. The Sustainable Insurance Roadmap and Report builds on 18 months of research by Better Insurance Network, a network of insurance professionals committed to amplifying the insurance industry’s role in the transition to a more sustainable, low carbon economy. The publication and research include interviews with Anthony Bice, Robert Bailey, and Kerry Adams-Strump from our Oliver Wyman Insurance and Asset Management team along with leading insurance companies and organizations.

The report takes a deep dive into ways insurers can seize the sustainability opportunity. It looks at the sustainability-related risks and challenges insurers need to consider, presents actions to drive change (such as operationalizing ESG data and building climate-resilience), and offers insight into best practices among market-leading companies. Below is an excerpt from the Better Insurance Network’s interview with Anthony Bice, Oliver Wyman's partner, that includes seven actions insurers can take to make a real-world impact today. The full report PDF can be viewed at the bottom of this page.

Making a real-world sustainability impact today

In the fast-evolving landscape of climate action, net-zero has emerged as the north star guiding efforts to deliver a more sustainable future. Many insurers now have net zero and/or emission reduction targets in place. To meet these targets, they must drive emissions within underwriting and investment portfolios as close to zero as possible by engaging with high-emitting sectors to enable their transition and tilting portfolios towards lower-emission companies within these sectors. They must then offset the hardest to abate emissions. This is a complex, long-term project that will take several decades to execute.

Though of paramount importance at the national and supranational policy level, the concept of net zero encounters obstacles when trickling down to individual company actions. For insurers, the first step is accurately measuring underwriting-associated emissions and setting science-based targets, and there are now tools to help insurers do this.

However, as the focus sharpens on measurement frameworks, we face a stark and somewhat uncomfortable truth — current approaches may not be catalyzing the behavioral changes necessary for meaningful real-world outcomes. Certainly not fast enough, at least. There is a risk that net-zero could even become a distraction, with entities putting more time and resources into the measurement and reporting of emissions over which they have limited control than instigating tangible actions. Scope 3 emissions (including investment, insurance associated, and the claims supply chain) constitute well over 80% of the emissions footprint, and even more if they include the Scope 3 emissions of their clients and investees.

Breaking down barriers to collaborative sustainability action

To start making a real impact as an industry, we need to change some of our long-held beliefs and approaches. Breaking free from a siloed mindset is essential. Climate-related risks are interconnected, calling for systemic thinking and collaborative innovation that cuts across insurance classes, business units and the value chain. Industry bodies have a pivotal role to play in driving policy change, reshaping market culture and breaking down barriers to collaborative action.

We also need to recognize the long-term feedback effects of positive actions taken today. Logic tells us the current trend of deteriorating loss ratios will inevitably improve if we invest in helping businesses and communities build climate resilience. This is also key to preserving the insurability of risks like floods in Florida, wildfires in California and bushfires in Australia. However, incentivizing change is difficult if the benefits of actions only play out over the longer term. The insurance market is particularly susceptible to this ‘tragedy of horizons.’ P&C insurance policies renew every 12 months, so even if you invest in activities that reduce physical risk, there’s no guarantee you are then going to see the benefits of that risk exposure on individual clients over the longer term.

The principal-agent problem adds another layer of complexity for insurers as the overarching goals laid out at the corporate level can sometimes misalign with the commercial and competitive realities for underwriters (and brokers) making decisions and executing transactions.

In addition, competitors who take no action today could also, in theory, exploit the investment that market-leading companies make in resilience-building without putting in any of the hard yards. Yet there are strategic benefits to taking a more proactive approach. Engaging with insureds and investees on decarbonization and resilience efforts, for example, provides us with a unique understanding of the changing risk landscape, which may eventually be integrated into risk selection and pricing algorithms. With the credibility of historical data and backward-looking models increasingly being challenged, and actuaries grappling with increasing volatility and uncertainty, insights like these will only become more valuable.

Despite the complexities, a belief in the long-term benefits can guide us through today’s challenges and inspire us to take meaningful action. Below are seven areas in which insurers can start making a real-world impact.

Unlocking capital for climate solutions and green technology

The transition to a low-carbon economy represents a multi-billion-dollar investment opportunity over the next two decades. Insurers have an enormous role to play in providing both investment capital and risk financing to enable this transition, particularly to accelerate the scale-up of emerging clean tech and climate solutions.

Challenges include a relative lack of scalable opportunities that offer stable, predictable returns, and the stringent fiduciary obligations insurers must satisfy around liquidity, asset-liability matching, risk concentration, volatility and returns.

Insurers have a key advocacy role to play, working with governments and regulators to encourage policies that incentivize investment into climate solutions, and provide greater clarity on how to incorporate climate risk into investment decisions.