Sustainability for a resilient tomorrow
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We are living amid unprecedented interconnected crises in the form of COVID-19, climate change and biodiversity loss. With the advancement of technology, there is a light at the end of this tunnel. The insurance industry plays a hugely important part in addressing sustainability challenges, which can ease both the Covid-19 and climate crises. Several products and solutions have been developed by Swiss Re to this extent.
"We’re convinced that all companies need to adopt a mindset and take action with sustainability as the key driver," says Mike Mitchell, Swiss Re’s Head of Property & Specialty Underwriting. "A sustainable insurance business is dependent on environmental, social and economic sustainability. In short, insurability goes hand-in-hand with sustainability, so it should be part of our industry’s role to promote sustainability."
"A lot of the risks we cover are natural catastrophe risks, but there are also many other types of coverage that we provide that address environmental and social issues," comments Gillian Rutherford-Liske, Head of Sustainability Reinsurance at Swiss Re. "They are climate- and health-related, they are around food security and infrastructure to provide clean water. So much of what we cover addresses societies challenges. In fact, our business is so relevant to addressing sustainability challenges that it touches all 17 of the UN Sustainable Development Goals (SDGs)."
Transforming uninsurable risk
Parametric insurance is just one of the mechanisms that are helping to make the world more sustainable. And it’s not just for protecting natural assets. "Parametric is a brilliant complement to the normal indemnity policy," says Rutherford-Liske.
"You might buy your insurance policy to cover your house and then have a parametric top-up in case a terrible event hits you and your family needs an emergency cover. It also helps us to addresses the issue of affordability, which is a big issue when it comes to increasing insurance coverage."
Unexpected events can seriously hit SMEs financially as well. They are vulnerable to temporary changes in people's habits and natural catastrophes alike. In Israel we have just launched an innovative earthquake parametric product, supported by a digital channel, linking to Swiss Re's platform for event trigger monitoring. The client was looking for a simple, straight forward product for emergency money for SMEs, which we were able to design and deliver.
Flooding is another area in which increased insurance coverage is desperately needed. Take the United States, where 95% of homeowners do not have flood insurance.
"In the US last year, we had around USD 45 billion in economic losses from floods," says Rutherford-Liske, pointing out that the protection gap for US flood is about USD 36 billion.
Swiss Re believes that there is enormous potential for more collaboration between the public and private sectors. In order to truly close the protection gap we need these sectors to work together to make homeowners more aware of their true risk. A great example is our efforts in the US, in which our public and private efforts have led to a greatly increased take-up of flood insurance. With flood being a leading global peril, our work extends to other countries as well. We continue to work on a public basis in the UK and have recently launched a private product with our partners in Germany focusing on high risk flood zones.
It’s not just about picking up the pieces after a disaster. Swiss Re is driving its business according to a clear environmental policy, evaluating reinsurance proposals against sustainability risk criteria before deciding whether to provide cover.
In common with others in the industry, we have a Climate Action Plan and support sustainable development by providing cover for infrastructure like zero-carbon power generation. At the same time, we are reducing our exposure to carbon-intensive industries like thermal coal and oil.
Stakeholder pressure is helping the whole industry to change and to converge around climate actions. "There’s an emergency that’s not coming sometime in the future– it’s happening now," says Rutherford-Liske. "I would say the same about biodiversity and ecosystem integrity. We must converge our efforts with governments and other institutions. It’s an imperative."
Of course, the insurance industry is also a major investor − and this is another key tool in encouraging sustainability. Almost 100% of Swiss Re’s assets are invested according to environmental, social and governance (ESG) criteria − we currently have green and social bonds to the value of USD 1.9 billion, and we’re aiming for USD 4 billion by 2024.
As Rutherford-Liske says, "we have to be part of the solution" and ensure that future generations can thrive as we do now.
When talking about the urgent need to protect the world’s coral reefs, insurance doesn’t normally spring to mind. And yet the insurance industry plays a hugely important part in this and many other policies designed to improve sustainability.
In the case of the Yucatan reefs in Mexico, Swiss Re helped to design a public-private product that uses weather data to alert teams of divers to immediately repair damaged reefs in the wake of storms. Swift action makes all the difference to the efficacy of the divers’ work. So parametric insurance is triggered by independently verifiable data − rather than waiting for claims to be submitted.
The human factor
Insurance is also contributing to enhancing human health on a personal level. Traditional health insurance cover has evolved to not just pay for treatments, but also to promote healthy lifestyles and the development of healthcare facilities as part of the cover provided.
For example, a Swiss Re solution provides online support for people with type 2 diabetes to manage their condition more effectively and improve the quality of their lives, leading to reduced premiums.
"We must not neglect the social side," says Rutherford-Liske. "One of the risks and issues that we’re all facing is around inequality, which we should not underestimate. The impact that has on people’s wellbeing is a very fundamental part of sustainability too."
Mike Mitchell agrees, citing products such as Swiss Re’s education bonds, which promote continuity of education after catastrophic events. The company’s cyber personal lines also provide support services for parents and young people affected by cyberbullying. Mental health and human rights are high on Swiss Re’s agenda. "By providing affordable and innovative products, our industry can do its part in levelling out social inequality and in promoting a healthy and safe environment," he says.
It’s clear that our world faces a sustainability crisis − from the climate emergency to the threat to human health posed by the pandemic. Insurance plays a vital part in building societal resilience and making the world more sustainable. At Swiss Re, we want to be at the forefront of that effort.