How insurance can shape tomorrow

From hedging against unforeseen, unfortunate circumstances to securing our collective future, the role of insurance has evolved over the past decades.

In fact, the insurance industry has become something of a business-side frontrunner in the movement to ensure a sustainable future for the planet: economic, social and environmental.

It’s hardly a surprising role for insurers. After all, who knows future risks better than insurance companies?

Other than predicting risks and helping customers manage them, insurers can accelerate the global economy’s sustainable transformation by encouraging a shift away from non-sustainable behavior and processes, according to Allianz economists.

‘Impact underwriting’ is not just good for society, it’s also good for business, they write in the 'Impact Underwriting: Sustainable Insurance as an Opportunity for Society and Business’ report.

Allianz Research highlights nine fields of sustainable action for the insurance industry. 

Climate change

Differing opinions aside, there is no denying climate change. The Paris Agreement aims to restrict the rise in global temperature to below 1.5 degrees Celsius above pre-industrial levels. 

The gravity of the issue is not lost on humans. Serious weather events have become more frequent and more intense, warning us that there’s more pain ahead. According to experts, the intensity of tropical cyclone storm and rain are expected to increased going forward.

Besides the loss of lives and property in the affected areas, disasters have the potential to disrupt global supply chains, especially in industrial belts along coastal areas. Further, climate change could bring disasters to regions that earlier had no such experience, making them more prone to severe damages.

Given the risks, the demand for new insurance products for extreme weather events is growing. The risk associated with such disasters are increasingly covered via alternative risk transfers and impact underwriting needs to close existing insurance gaps.

allianz research impact insurance sustainability underwriting
Source: Allianz Research

Renewable energy

Renewable equals sustainable, at least where energy is concerned.

Renewable energy has been gaining ground over the past decade, with installed capacity steadily rising. The global renewable energy capacity is expected to more than triple from current levels by 2050. Naturally, these facilities need insurance against physical, development or operational risks. Identifying risks associated with new technologies and territories and covering them could open more doors. 

Alternative mobility

Mobility has been EV-olving. And how! Electrified, autonomous, shared and connected, the future of mobility is exciting to say the least.

With electric vehicles (EVs) becoming more attractive as battery and renewable power costs decline, a tipping point could come as early as 2024, when battery electric cars become cheaper than those with internal combustion engines.

By 2040, EVs are expected to dominate new car sales. This means insurers will have to adapt their products for EVs and also car-sharing as well as for autonomous driving. Also, there could be new opportunities in the area of energy infrastructure for electric vehicles. 

Real estate

The new color of architecture is green. Regulators are increasingly demanding better energy efficiency of buildings, setting greener standards for construction. With good reason: in 2016, buildings accounted for 40 percent of the EU's energy consumption, 36 percent of its carbon emissions and 55 percent of its electricity consumption.

Perhaps the most interesting – and the most challenging – aspect of this would be adapting existing buildings to comply with the requirements. Renovation rates in the EU are rather low and will have to more than double to 3 percent annually to meet the region’s energy efficiency and climate objectives.

In this area, insurers can play mediator, service provider and risk-bearer. Other than covering delays and improper implementation risks, they can help real estate owners overcome non-financial barriers such as misinformation, distrust and the inability to find qualified workers.

Major equivalent renovation rates of residential buildings across EU

allianz research impact insurance sustainability underwriting EU real estate renovation rates
Source: Allianz Research, ZEBRA (2020)

Sustainable lifestyle

Can insurance persuade you to adopt a greener lifestyle? Yes! By incentivizing the adoption of eco-friendly appliances, buildings and cars. In the EU, a fifth of the energy consumed at homes is for cooking, lighting and powering appliances. Despite the growing energy efficiency of appliances, the overall consumption hasn’t come down as usage and the number of appliances per person rise. That’s understandable: useful appliances do make our hectic lives a tad convenient.

Besides offering lower premiums for eco-friendly choices, insurers can allow for upgrades to more energy-efficient appliances and machinery as well as encourage people to opt for repairs instead of replacements. 

Energy consumption of electrical appliances

allianz research impact insurance sustainability underwriting appliance energy consumption
Source: Allianz Research, European Environmental Agency (2019)

The future of work

Triggering the biggest remote working experiment this year, the Covid-19 pandemic showed that home is indeed where the future of work is. As more companies consider adopting a permanent work-from-home culture, certain changes will shift the landscape for insurance too. Daily commute and business travel will decline and commercial real estate usage will drop.

Insurers can help reduce implementation barriers by offering cover for newer requirements.

Home office potential by sector in Germany (in percent)

allianz research impact insurance sustainability underwriting home office
Source: Allianz Research and Alipour, Falck and Schüller (2020)

Digitalization

Driving most of our future plans – be it remote working or sustainability – is digitalization. Blockchain and distributed ledger technology (DLT)  are beginning to rewire our digital infrastructure and challenge our thinking on how data, information, assets and even governance can be reorganized and reimagined.

But connectedness has its challenges, not least of which is cyber-induced business interruption including cyber attacks. If this issue is not addressed, companies will be cautious on digitalization, slowing the other futuristic trends.

Impact underwriting could cater to the demand for non-damage business interruption insurance, offering strong cyber insurance portfolios as well as risk consulting and risk service. 

Emerging customers and regions

We can call this century the ‘Age of the Internet’.

Yet, half of the global population doesn’t have access to the internet.

The encouraging news is that mobile phones are increasingly getting more people online, opening up doors for insurers to provide solutions to new populations that are particularly challenged.

For greater impact, new insurance products can be tailored to the specific needs of hitherto unserved populations such as low-income groups, people with disabilities, elderly customers and minorities. Improved access to insurance has the potential to enhance livelihoods, reduce poverty and create opportunities for sustainable economic advancement.

To give a quick example: insurers can give microinsurance to small farmers, throwing in weather alerts for livestock or crops to help them make better decisions.

Access to mobile phones and the internet by country

allianz research impact insurance sustainability underwriting global offline population
Source: Allianz Research and World Bank (2016)

Ecosystem

Look through any tourism catalog and pictures of scenic natural spots leap out at you. But many of these celebrated landscapes are under threat due to human activity.

Insurance can help protect these assets and even prevent damage to the livelihoods of people who indirectly depend on these natural landscapes. The world's first insurance policy on a coral reef is now in place in Mexico. Protection for the Mesoamerican coral reef off the coast of Mexico's Yucatan Peninsula ensures the region’s economic sustainability. If the reef dies, the beach erosion that would follow could threaten the area’s key source of income - tourism.

Insurers will play a crucial role in protecting and restoring natural landscapes in the future. The conservation of a valuable natural asset is creating a scalable new market for the industry and it could be applied to other regions and ecosystems. 

The possibilities are endless. What remains to be seen, is how these trends lead to the evolution of the insurance industry.

For a detailed look into the opportunities for insurers in impact underwriting, click here for the full report

The Allianz Group is one of the world's leading insurers and asset managers with more than 100 million retail and corporate customers in more than 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing 766 billion euros on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage 1.7 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we hold the leading position for insurers in the Dow Jones Sustainability Index. In 2019, over 147,000 employees achieved total revenues of 142 billion euros and an operating profit of 11.9 billion euros for the group.

These assessments are, as always, subject to the disclaimer provided below.

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Lorenz Weimann
Allianz SE
As with all content published on this site, these statements are subject to our cautionary note regarding forward-looking statements:
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