How insurance can support a more sustainable India
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The ongoing ravages of COVID-19 have exposed the fragility of our society in a time where action, not promises, are required to build a sustainable future. They made evident that India needs to adopt a whole-of-society approach to sustainability that addresses health, climate and infrastructure. After all, these issues are inextricably linked. For example, higher temperatures and more extreme drought events can reduce India’s labour productivity to a great extent, as its workers are relatively more exposed to the impacts of heat stress and health effects than those of other countries.1
In a recently published report by Swiss Re Institute - The economics of climate change: no action not an option, India ranked 45th among the 48 countries in the Climate Economics Index, which examines the overall climate resilience of the countries that together represent 90% of the world economy. India’s agriculture and tourism sectors, which respectively accounted for about 18% and 9% of total GDP in 2019, are particularly susceptible to fallout from climate change.
The country’s climate risks are exacerbated by the fact that it has not put in place adequate adaptive capacity. There is as yet no national climate adaptation plan or strategy, for example, and market surveys suggest that the population's awareness of climate change risks remains comparatively low.
Figure 1: India’s GDP loss potential from climate change
Source: Swiss Re institute, The economics of climate change, expertise publication
In the most extreme climate scenario, assuming a 3.2°C rise in temperature, India's economic losses are expected to amount to more than 35% of GDP. This underlines how sustainability goals and commercial interests are strongly aligned and should be addressed as an urgent priority by not only the re/insurance industry, but all of us.
Five principles for pursuing sustainability through insurance
Rather than taking attention away from India's sustainability challenges, the pandemic has served to highlight the nature and scale of the problems we are facing by exposing how vulnerable society and the economy are to adverse shocks. Insurance has a significant part to play in the movement towards a Nirantar Bharat (or sustainable India) that prioritises not just climate change resilience, but inclusiveness and social protection. As outlined by my colleague Gillian Rutherford-Liske, Head of Sustainability of Swiss Re's Reinsurance business, our contributions should be based on five key principles:
1. Sustainability is a business imperative
The re/insurance industry is on a sustainability journey. In the past it has been adept at understanding and describing problems, but not as effective in taking actions with sustainable outcomes in mind. But the tide is turning.
Aiming to be at the forefront of this change, Swiss Re is striving to insure, invest, operate and share knowledge in a way that tackles sustainability challenges and directly creates value. Our three major 2030 sustainability ambitions tie in with the broader goal of India's mission to build back better post-COVID-19: mitigating climate risk and advancing the energy transition; building societal resilience; and driving affordable insurance with digital solutions.
2. Insurance is an enabler
Until recently, sustainability in the insurance realm has mostly involved abstaining from underwriting ventures that could damage the environment, such as projects involving thermal coal and oil, or those that encroach on World Heritage sites. But the industry is increasingly recognising and embracing its role as enabler, and the focus is shifting to supporting businesses that address sustainability challenges.
We drive our business according to a clear environmental policy, evaluating re/insurance proposals against sustainability risk criteria before deciding whether to provide cover. Our Climate Action Plan supports sustainable development by providing cover for infrastructure like zero-carbon power generation, while reducing exposure to carbon-intensive industries.
The re/insurance industry also has a role to play as a major investor. Nearly 100% of Swiss Re's assets are invested taking environmental, social and governance (ESG) criteria into consideration.
3. Inclusive insurance is at the heart of sustainable business
Sustainability requires societal resilience, at the heart of which is inclusive insurance. COVID-19 has significantly raised the awareness of risk and need for insurance in India.2 There have also been massive strides in improving access and affordability, largely through the increased availability and adoption of insurance through digital ecosystems.
Yet the pandemic has also highlighted the vulnerabilities of certain groups, including informal workers, women, and the elderly, who have been disproportionately affected by the crisis and to whom attempts to provide government assistance have faced limitations. Improving inclusiveness for these groups will involve harnessing digitalisation, expanding access to technology and improving digital literacy.
The insurance industry can work specifically to extend coverage to excluded populations, such as those with pre-existing conditions or medical impairments, who generally are denied access to affordable insurance. The provision of life and health protection to these groups is one of our priorities.
4. The United Nations Sustainable Development Goals are a valuable benchmark
The 17 United Nations Sustainable Development Goals (SDGs) were adopted in 2015, laying out 169 interconnected environmental, social and economic targets with a 2030 timeline. Many insurance companies report their activities in relation to the SDGs, but this does not go far enough in measuring and demonstrating impact.
We have taken the step of screening each and every one of our Reinsurance underwriting portfolios according to the SDGs that are relevant to them. Specific actions are outlined for each portfolio, with progress tracked over time.
Figure 2: The United Nations Sustainable Development Goals
5. Partnerships are critical to achieving Nirantar Bharat
Partnerships are at the apex of the SDG pyramid, and for good reason, as collective action is key to addressing sustainability challenges.
A case in point is our alliance with satellite-observed data provider VanderSat to develop a state-of-the art soil moisture index, which paved the way for the provision of vital drought insurance to farmers who previously could not obtain such coverage. Another partnership involving satellite data was the basis for the launch in May 2020 of flood insurance in the small north-eastern state of Nagaland, marking the first time protection against natural catastrophes in the country was provided state-wide through parametric insurance.
Calling for a collective effort
India, like the rest of the world, is facing numerous tests to its resilience, including COVID-19, climate change, biodiversity loss and profound social inequality. Addressing sustainability is an urgent economic imperative, and key to achieving this will be the pursuit of inclusive partnerships at the global and local levels.
Our experience demonstrates that the re/insurance industry can serve as a leading enabler in that mission, and it is time we individually and collectively commit to combating climate change, improving social protection and leveraging innovation to shape an India that is more sustainable on all fronts.
There's a popular Chinese proverb that says: "The best time to plant a tree was 20 years ago. The second best time is now." Today we should be planting that tree and creating that joint movement to build a more sustainable future for India. Let’s work hand in hand to transform tomorrow.
2 "Going digital: Insights to optimise consumer appetite for online insurance in India", Swiss Re Institute, November 2020: https://www.swissre.com/dam/jcr:e6d179df-ae07-4985-a5ff-d399b7462ef9/swissre-institute-digital-platform-solutions-insurance-india.pdf