Did you know green insurance boosts investor confidence? And climate change poses risks you never knew about! In today’s world, environmental considerations are key across sectors as the risks related to climate change are real. Innovating with corresponding sustainability/green solutions is the need of the hour. Through the systemic implementation of green building practises across physical spaces and real estate properties, insurers boost investor sentiment while protecting them from risks and finding new ways to shield them. To achieve marketplace success, many insurers look for new ways to solve risks with an eye for detail to increase their overall market share.
Achim Steiner, Under-Secretary-General of the United Nations & Executive Director of the United Nations Environment Programme rightly observes: “In 1992, the risks to people and the planet from accelerating environmental degradation and social inequalities were just being glimpsed… Now they are fast becoming a reality for every man, woman and child alive today.Under the Principles for Sustainable Insurance, insurers joining this global initiative are embracing fundamental aspirations and turning them into concrete actions. These range from integrating ESG issues into a company’s management and operational DNA, to working together with clients, suppliers and governments to raise awareness of ESG issues, alongside developing new kinds of risk management products and services.”
Let’s examine what green insurance is and how some Asian countries are responding to the need for sustainable insurance solutions.
What is Green Insurance and why is it important?
Nothing’s ‘green’ literally about green insurance! However, the objective of green insurance is to incentivise innovation and investment in projects spanning renewable energy, energy efficiency and climate change.
Typically, green insurance pertains to sustainable products that provide environmental and socio-economic benefits while protecting public health throughout their lifecycle. This includes the extraction of their sourcing ingredients and raw materials that are used to produce the products from start to finish.
For instance, in construction and engineering, insurers can opt to cover specific risks that are pertinent to these segments.
In Vietnam’s construction sector, there is already considerable pressure on firms to report sustainability metrics based on data. This pressure percolates down to key stakeholders in the construction business such as government regulators, investors, contractors and of course, consumers who are highly conscious of environmental impact and sustainability practises. This requires Vietnamese construction firms to share real-time data throughout the life cycle of the project.
Broadly, green insurance policies offer a shield of financial protection to investors and developers, thereby encouraging more investment in sustainable projects. Interestingly, green financing events form an integral component of globally recognised Travel Resilience Frameworks followed by countries such as Mauritius, which promotes such events and invites top financial institutions and Travel and Tourism associations to engage and discuss funding solutions.
What Value Do Green Buildings and Sustainability Practices Bring?
A 2017 research paper titled ‘Green commercial building insurance in Malaysia’ has been authored by Yu Xin Ou Yang; Boon Cheong Chew; Heoy Shin Loo; Lay Hong Tan.
A few salient takeaways related to Green Insurance are based on their research:
When green features are incorporated into buildings, there is a lower probability of the risk of electrical fire in such structures.
Green commercial buildings minimise other risks such as HVAC issues and plumbing leakage-related problems.
Buildings with green features are deemed to be safer to conventional buildings that are easily exposed to electrical fire and other risks.
Green buildings are known to have higher property value as they are faster to secure high rents at less operating costs.
Premium discounts given to buildings that are certified as ‘green’ encourage homeowners to invest in green buildings, which will further enhance the market. Another view is that green buildings need higher coverage value which translates into a higher premium. But if a discount is offered, companies may suffer a loss in case compensation is required.
Building a Sustainable Pipeline of Green Insurance Solutions is Essential
Globally, insurers are placing high priority on sustainability. They recognise that there is a greater need to minimise risks from natural disasters including earthquakes, floods and fires. In this context, building a sustainable pipeline of insurance solutions is necessary.
Consider how Thailand-based insurers provide products that are categorised clearly as green insurance. Their policies are automatically switched on when a consumer starts driving his car. Thereby, the objective is to minimise the costs pertaining to automotive cover by around 40%, according to a 2022 report on ‘Green Insurance: An increasingly crucial trend’ by Baker McKenzie.
Promoting Sustainability and Green Insurance Through Campaigns
Creative campaigns also push the green insurance strategy to an innovative level such as AIA Thailand’s ‘AIA Sharing A Life 9” campaign which motivated its partners and employees to plant 20,000 trees across 9 locations in 2022. The campaign created an impact as it created green spaces and filter walls to keep off dust. It also established alignment with the Bangkok Metropolitan Administration’s One Million Trees Planting Campaign.
Simply put, promoting sustainability helps mitigate risks better, which is why the United Nations Environment Programme Finance Initiative (UNEPFI) Principles for Sustainable Insurance is a good reference manual. It articulates how the insurance sector should address sustainability issues. For insurers, it works as a relevant policy guide to realign them with ESG standards.
Green Insurance Boosts Investor Sentiments, Mitigates Climate Risks
For insurers across the globe, the time is now ripe to craft innovative loss-prevention insurance solutions that will minimise losses that are directly pegged to climate change. For consumers, green insurance policies help to mitigate climate-related risks and provide financial security to promote the adoption of sustainable and eco-friendly practices across sectors.
In India, green auto insurance has been gaining momentum as it covers the EV battery, which is cited as the most expensive component in an electric vehicle. With battery replacement costs exceeding ten lakh rupees, insurance coverage becomes critical for EV owners. Several discounts and special coverages are often rolled out to EV owners in India. This is further catalysing a movement for mindful driving practises, such as carpooling, and fuel-efficient driving, among others. As we all know, these measures contribute to lower emissions and cleaner air in our cities.
Summing up, collaborative efforts between insurers, governments and stakeholders are essential to develop policies that are uniquely tailored to encourage green insurance adoption and promote sustainable business practises.
