Digital Vision: Digital Insurance

Greener Insurance

Building a more sustainable insurance ecosystem

At a Glance

While sustainability is a challenge for insurers, it’s also a major business opportunity for an industry that excels at mitigating risk, writes Atos’ Franck Coisnon. The sector is uniquely placed for the transition to a green economy, through decarbonized operations, greener investments, and climate-protection products.

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Franck Coisnon

Group Industry Director, Global Financial Services & Insurance, Atos

 

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While sustainability is a major challenge for insurers, it’s also a key business opportunity for an industry that excels at managing and mitigating risk.

And for many insurers – such as mutual organizations – their corporate role and responsibilities within certain sectors or communities puts a particularly sharp focus on their actions around environmental sustainability.

There are three key areas in which insurance companies are taking action on sustainability: across their operations and supply chains; through their investment portfolios; and in the products and services they deliver. In all these domains, digital tools and data are essential to enabling insurers to develop as more sustainable businesses.

Decarbonizing operations

Analyzing large volumes of data is critical for insurers to report their carbon footprint at an organizational level before taking the steps needed to decarbonize their IT and operations. This means not just reducing emissions under their direct ownership or operational control (Scope 1 emissions), but also those that they generate indirectly through their value chain (Scope 3).

In terms of Scope 1 emissions, the digitalization of business processes must be achieved with evidence-based decisions around selecting digital technologies that reduce carbon footprints. These might include the use of AI and Machine Learning tools that can automatically track emissions throughout an organisation’s carbon footprint in real time. It’s worth pointing out here that while digital technologies account for 4% of the world’s carbon emissions, they can help to reduce them by around 15%.1

1Digital technology can cut global emissions by 15%. Here’s how, World Economic Forum, (2019)

Making greener investments

Secondly, let’s look at insurance companies’ investment portfolios and the demand from stakeholders for greener investment management. For instance, given that buildings account for a large proportion of greenhouse gases2, real estate investments need to be carefully evaluated and managed to reduce carbon exposure.

In the heavily regulated financial services industry, laws such as the Sustainable Finance Disclosure Regulation require sustainability reporting on a large panel of financial instruments. It’s about integrating environmental, social and governance (ESG) criteria into investment decisions. So, companies need a data platform in place to consolidate multiple data sources and produce insights to analyze its portfolio.

2Global Status Report, International Energy Agency for the Global Alliance for Buildings and Construction (2019)

Insurers need to be able to anticipate the future direction of sustainability regulations and requirements. Globally, many nations are rushing to strengthen the requirements placed upon insurers, with the EU announcing further amendments to MiFID II regulations related to sustainability and environmental, social and corporate governance (ESG) factors in April 2021. Elsewhere, the US and France have worked to agree a common set of sustainable definitions in finance, while Canada, Kazakhstan and Indonesia have all begun building their own taxonomies, to ensure that financial services are held to account on delivering against the sustainability goals they publicly commit to.

Improving protection against climate risks

Through their products and services, insurers face a slightly different challenge: to mitigate their climate risk exposure. The risks arising from floods, hurricanes, heatwaves and drought is of course nothing new. However, their increasing frequency and intensity makes this a growing challenge for insurance companies. Insurers are evaluating their exposure and integrating the risks into their day-to-day decision-making. At the same time, this also opens up opportunities to develop new products and services to protect companies and individuals.

This too comes back to data platforms that can gather the right types and quantities of data to precisely calculate exposure based on the customer, the asset, and the location of that asset. Climate risks are often too large to be managed solely by private insurers. Some require mitigation measures in partnership with government and other agencies. For example, if you want to insure a manufacturing plant in an area prone to hurricanes, then an early warning system is required to better protect employees and the plant in the event of an incident.

Evolving decarbonization ecosystems

Data from multiple sources is essential for tracking and reducing Scope 1 and Scope 3 emissions. Data platforms, with automation, analytics and artificial intelligence, are key to turning that data into insights businesses can action, with targets and KPIs at every level. It’s why Atos developed MyCO2 Compass to automate, integrate and mature all our carbon data. Flexible carbon data models, together with the ability to integrate data from a multitude of sources, support all kinds of applications, from informing green finance, to buildings management, to weather forecasting, to managing the impacts of climate change.

Key Takeaway

Ultimately, if you want to manage something you need to measure it – and turn those metrics into sustainable action and manageable business risk. As underwriters, investors, employers, partners, and key members of their communities, insurance companies have a unique and important role to play in a wider decarbonization ecosystem.

Digital Insurance – Further Insights

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Carol Houle, Global Head of Financial Services and Insurance, Atos