Sustainability Megaforces and the Insurance Industry

In our previous two articles, The Ten Sustainability Megaforces and Sustainability Megaforces: Is the insurance industry prepared?, we discussed the ten sustainability trends that are expected to have the greatest impact and affect on the world of business. We look at these megaforces, more specifically, in the context of insurance industry. 

Shifting consumer needs

Many international and local companies have introduced products responding to changing consumer needs and consumer preferences shifting to more sustainable behaviour – these include products targeting new and growing industry sectors, products with a ‘green’ element and products responding to new and increasing risks.

HSBC has introduced a sustainable extreme weather insurance product in Brazil and a Go Green project in Singapore, where clients get insurance benefits when they choose hybrid cars.
Zurich financial services provides ‘carbon capture and sequestration liability insurance’ as well as providing insurance to companies involved in the renewable energy industry. In Ireland, Zurich offers special premiums, specialised breakdown services and free towing to policyholders who drive electric vehicles, incentivising the reduction of carbon emissions from motor vehicles.
Allianz offers specialised insurance for renewable energy project construction and operation; agricultural insurance linked to changes in weather patterns and environmental asset insurance as well as environmental liability insurance. This insurance product was offered to the New Zealand government in their expansion of the northern Gateway Toll road, which required innovative solutions to mitigate sustainability risks.

Sustainability factors will need to be considered in investments

Insurance companies will need a good understanding of sustainability trends in order to adequately structure investment portfolios. This involves a good assessment of the sustainability risks and opportunities faced at an industry level, and closer scrutiny of sustainability performance at a company level.

Figure 5 compares environmental costs per sector, showing how sustainability issues can hit the bottom line across various sectors. The data was compiled by Trucost, based on a dataset of over 800 companies over the period 2002- 10, and represents the value potentially at stake relative to EBITDA, if companies had to pay the environmental costs of their production.

Figure 5: Average environmental costs per sector


Figure 6: Environment intensity per sector

insurance industry

Figure 6 shows which sectors are seeing the largest rises in environmental costs, and which sectors are doing best at reducing their environmental intensity.

A 2012 report by carbon Tracker, entitled ‘Unburnable carbon’ has tried to estimate the size of the ‘carbon bubble’ being carried by the world’s financial markets. The carbon bubble is created as a result of unburnable carbon, in the form of fossil fuels, which cannot be burned due to existing limits on carbon emissions, but are still accounted for as the reserves of top oil and gas companies. The report estimates that up to 80 percent of assets are technically ‘unburnable’, meaning that certain company stocks may be highly overvalued.

These types of analyses, together with assessing individual company responses, will become more and more relevant in making prudent investment decisions.


Sustainability trends provide both greater risk and new opportunities to drive business value for the insurance industry. Companies therefore need to understand how these risks impact policyholders, their risk profiles and their needs in order to design the correct strategic response. We are starting to see the emergence of innovative products locally and internationally, but the industry will need to respond to these risks far more uniformly and concretely, especially in the updating
of actuarial models to take growing sustainability 
risks into account. There is great opportunity for collaboration in this space, whose full potential has not yet been explored. For example, partnerships between companies and with research institutions to update actuarial models may lessen the burden on individual companies.

The insurance industry, through its ability to mitigate risk also has a very important role to play in mitigating the risks posed to society. By proactively designing products to respond to the most pressing sustainability megatrends affecting their customers, insurance companies can reduce their own risks and improve benefits for policyholders in a manner that makes business sense. The industry should also look to find further innovations to insure previously uninsurable market segments. This includes looking into partnerships with other organisations in the pursuit of such innovation.

David Okwara

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