In response to the widespread demand for more attention to be paid to the ESG agenda, many German insurers have set themselves ambitious targets. However, executives often lack a clear roadmap for navigating the various challenges of implementing the agenda. With the help of a structured and holistic approach, insurers can measure, manage and improve their ESG performance, and in this way fulfill their special responsibility to help society and businesses build safer communities and minimize environmental impact.
The issue of sustainability has irreversibly embedded itself within the fabric of both the economy and society. Inevitably, we are seeing this impact in the insurance industry. An increasing number of sustainable products are being designed to satisfy the customer expectations revealed in various market surveys. The future for any insurers who ignore or downplay the importance of sustainability appears bleak.
The GDV, the German Insurance Association, has led the way by making commitments to reduce emissions, bolster diversity in senior management positions within the industry, and integrate the principle of sustainability within its own governance structures and its members’ insurance portfolios.
Strategy& predicts significant and long-lasting implications for insurers
Indeed, Strategy& anticipates substantial developments in the insurance industry as the ESG agenda spreads further and deeper into every aspect of the insurance business.
Maintaining focus and fulfilling obligations
The progress of individual insurers, however, has stalled somewhat this year after making significant commitments in 2021. International conflict and economic disruption have certainly diverted management attention in general. Furthermore, longer-term structural challenges, not least the complex practical task of building a comprehensive measurement system for sustainability, also hold companies back. Indeed, in one of our studies, three out of four companies say they are still at the beginning of their ESG transformation.
We believe that insurers, given their important social role as protectors and risk advisers, have an obligation to up their game and set an example that reverberates across the industry spectrum. They need to act on each of the three aspects of the ESG agenda – environmental, social and governance.
In respect of the environment, emissions are divided into three categories. Scope 1 and 2 emissions certainly need to be addressed urgently and can actually be reduced relatively quickly. Scope 3, however, is by far the most significant category for the industry. Insurers have committed to a comprehensive reduction of Scope 3 emissions, but this will be a long process that will require necessitate substantial time and effort. Its practical implementation should no longer be postponed.
Insurers have made fewer concrete commitments to social sustainability. Strategy& believes that companies’ social responsibility goes well beyond its duties as an employer, and that this is especially true for insurers as social responsibility is a key identifier of their business model.
Although insurers have made steps to reform their governance structures as part of their ESG strategy, we still believe that a shift in mindset is necessary. Insurers should view the move towards improved governance as an opportunity to implement comprehensive organizational change, rather than just as a reactive response to externally imposed regulation.
The need for a holistic ESG approach
Strategy& has developed a framework to help insurers to measure, manage and thus improve their ESG performance. There are four dimensions to this framework.
Insurers need to elaborate all four perspectives to improve their ESG performance in all dimensions.
As with any major change, the ESG transformation requires early movers. However, these early movers have the potential to gain a significant market advantage. One of our ESG Insurance studies revealed that one out of two private policyholders will include sustainability promises as a selection criterion when choosing their insurer. A full 80% would like to learn more from their insurer about sustainable products and services. Thus, the earlier the insurer embarks on the ESG journey, the greater its business opportunities.
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