In February, the Financial Conduct Authority published its blueprint for sustainability. Its title, ‘Finance for positive sustainable change’ was modest, but its scope is vast.
To understand the paper, we have to break insurance down into its constituent parts: risk management advice, underwriting, paying claims, and investing hundreds of billions of pounds of reserves.
One of the most important ways in which insurance can contribute to environmental sustainability is advising and arranging cover for transition risks – a market that could be worth £100 billion by 2030. In the underwriting space, some insurers have refused to cover some new fossil fuel projects, while others have focussed on underwriting projects that have a clear path to net zero. In either case, insurers have a major role to play in sustainability.
Sustainable claims form a relatively new area of activity – focussing on repair rather than replacement, or building back greener. This is an area where focus can only grow in future – with insurers needing to communicate effectively with consumers who may still see ‘new for old’ as the gold standard in claims.
Finally, the way insurers invest their reserves can have a huge impact on sustainability, especially if governments can help to create financial instruments that match the risk and liquidity needs of insurers as institutional investors.
All this is in addition to the major role insurers have socially, by underwriting and giving advice on a huge range of public, private, and voluntary initiatives affecting care, health, education, and many more key social services, not to mention the part insurers and brokers play as employers in promoting inclusion and diversity and the responsibilities they have to customers with lower levels of financial capability, for a range of different reasons.
If there ever was a subject that embraces everything insurers do, sustainability is it.