Is your digital transformation agenda missing ESG? Don’t get left behind

Many in the industry will be aware of SwissRe’s model to insure the barrier reef off the Yucatan peninsula [3]. This is a prime example of the new products we see increasing demand for, both as we attribute value to natural assets but also as we see more impacts from global heating.  

Growth will not just come from increased demand to insure natural assets. The potential for insurance to disrupt and attract customers while reducing ESG is still in its infancy. There is a huge opportunity to add ESG elements to existing premium calculations and customer products to appeal to eco- conscious consumers, see a few examples below: 

• Reduced pricing of car insurance for electric vehicles 
• Reduced  pricing of home insurance for homes with smart and sustainable energy features
• Collaborations with utilities to finance and insure heat pumps 
• Travel insurance with carbon offsetting built in 

How to act? Refresh your business strategy for flagship new products and integration with your existing products. Conduct user research to identify key demand areas. Create an ESG product innovation track  

Big data has provided material improvements in pricing accuracy and risk modelling but what happens when algorithms replace human underwriters en mass? Assuming demands from regulation such as the EU Sustainable Finance Disclosure Regulation continue, insurers will have to track and disclose more data use cases and how this influences Artificial Intelligence (AI) outcomes. With the end of the ‘black box’ era we see a risk in the discovery of unethical or biased decisions negatively impacting customers sentiment with ABI research showing that consumers approach the use of data in insurance with mistrust, and with a lack of understanding [4].  

Luckily it is not all bad news. Recent research shows 70% of customers are willing to pay more for ethical insurance products [5]. This presents an opportunity to derive value from the last decade ‘big data’ infrastructure investments. Those companies that can show they use data in an ethical way with transparency will have a market advantage. 

How to act? Conduct a health check of all AI instances, score them on accuracy and ‘ethical’ performance. Identify key areas lacking in transparency of where customer insights can be influenced. 

While not an obvious customer pain point, IT related emissions are a challenge for all insurers when it comes to their sustainability performance. With the high focus on the cost, and source of energy generation, customers are increasingly aware of the emissions from data centres and hardware [6]. Given the outsize focus on emissions, we see positive progress in the areas outlined above, severely underlined by a failure to aggressively reduce Scope 1 and 2 tCO2 emissions. 

While stranded assets usually bring to mind something like a coal fired power station, our clients are also starting to attribute the term to technology investments from vendors with poor ESG performance, machine learning or AI solutions that lack ESG design criteria or redundant real estate in a hybrid working world. We deem these the ‘secret’ stranded assets as they are not obviously visible to customers but will act as future barriers to insurers ability to meet sustainability criteria and reporting thresholds.  

How to act? Undertake a ‘Green’ IT strategy review to identify where legacy is impacting emission performance, review Scope 2 emissions for obvious areas of underperformance and boost enterprise agility on a sustainable IT platform.