14 minute read 30 Jul 2021
small green saplings in black soil

How the insurance industry can close the growing protection gap

Authors
Isabelle Santenac

EY Global Insurance Leader

Passionate transformation insurance leader. Inspiring the next generation of female leaders. Proud mother of three. Trail runner. Golfer. Skier. Loves traveling and cooking.

Ed Majkowski

EY Americas Insurance Sector and Consulting Leader

Transformational insurance leader.

14 minute read 30 Jul 2021
Related topics Insurance Climate change and sustainability Sustainability in Financial Services
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Insurers have much to gain by developing solutions to help society address environmental, social and governance risks.

In brief
  • Climate change presents unique challenges to insurers, but also an opportunity to live up to their noble purpose.
  • Insurers can play a leadership role in educating society about the risks of climate change.
  • Insurers can influence businesses to reduce carbon outputs and develop affordable solutions to protect clients against climate risks.

Climate risk is critical to the insurance industry because of the scope of the potential impacts and the existing protection gaps. In these videos, EY Global Insurance Leader Isabelle Santenac and EY Americas Insurance Sector and Consulting Leader Ed Majkowski highlight the most urgent issues relative to climate risk and identify the actions insurance leaders – including Chief Sustainability Officers – can take to live the industry’s purpose while also reaping the rewards of purpose-led growth.

As Isabelle and Ed point out, the costs of natural catastrophes go up every year, with claims now measured in the hundreds of billions of dollars. “Once-in-a-century” storms seem to occur annually. Climate risk is particularly challenging because it affects both assets and liabilities. Plus, it is very difficult to model and extends across a very long horizon span. Insurers must measure both physical risks and also those associated with the transition to a greener economy, such as falling auto premiums as fewer people drive.

Insurers can address climate risks in several ways. They can – and must – educate society about the extent and severity of climate risks. As investors with assets of more than US$30 trillion, the industry can help governments build more resilient infrastructures to protect against natural disasters.

Insurers can also influence the greening of the economy – and not just by shutting down coverages for “brown” sectors, but rather, as Isabelle puts it in the video above, by “pushing those businesses to accelerate their transition.” Lastly, they can help clients understand their own climate risks and define affordable solutions to protect against those risks.

We believe these actions will provide extraordinary benefits to society. Lloyd’s has estimated that a 1% increase in insurance coverage could reduce the global cost of climate-related disasters to taxpayers or governments by 22%.1

Looking at the social aspect of ESG, more consumers expect large businesses to help address society’s biggest problems. Insurers certainly have a responsibility to help address the global retirement savings gap. For example, they can work with governments to provide education about the importance of life insurance and retirement savings. They can also help design solutions that make it easier to save money, set financial goals, make better financial decisions and increase access to healthcare. AI-enabled underwriting models must be designed for fair and unbiased pricing decisions.

Along with the commitments of many large insurers to address climate change, closing the savings and protection gaps clearly demonstrates the industry’s purpose of protecting individuals, businesses and communities against the most severe threats. It’s not enough to try to get back to business as usual; as Ed observes in the video above, “the industry right now really has an opportunity to work with governments, to team on the education front … so that protection is front and center for everyone.”

It’s evident that ESG strategies are critical to the resiliency and long-term success of companies. As Isabelle and Ed make clear, the insurers that get ESG right and truly live their purpose regarding climate change will strengthen their businesses – a classic case of doing well by doing good.

How EY can help

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Summary

Climate change poses serious threats to businesses and communities worldwide and requires urgent action. Insurers are uniquely positioned to provide leadership in helping society address its most urgent threats, including the physical risks of climate change, disruptions from the transition to a low-carbon economy and the vast retirement savings gaps. Clearer risk insights and flexible solutions to close the protection gap are among the ways insurers can live their purpose and benefit their bottom lines.

About this article

Authors
Isabelle Santenac

EY Global Insurance Leader

Passionate transformation insurance leader. Inspiring the next generation of female leaders. Proud mother of three. Trail runner. Golfer. Skier. Loves traveling and cooking.

Ed Majkowski

EY Americas Insurance Sector and Consulting Leader

Transformational insurance leader.

Related topics Insurance Climate change and sustainability Sustainability in Financial Services
Upvote