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How long-term value can guide insurers toward sustainable futures

Making ESG and stakeholder interests core to strategy can give insurers the resilience and purpose to compete in a changing environment.

In brief

  • Embracing long-term value creation, with its emphasis on stakeholders, society and sustainability, has become a strategic imperative for insurance companies.
  • Incorporating climate change, social unrest and other potential disruptions into business models can help insurers drive long-term value for all constituents.
  • Insurance companies can position themselves for a sustainable future by focusing on four long-term value pillars: customer, people, social and financial.

Many insurance company executives believe that being in the business of protecting customers against future risks means they are already pursuing long-term value (LTV) creation, but that’s only partially true. Increasing stakeholder expectations and a rapidly transforming operating environment, accelerated by the COVID-19 pandemic and rising concerns about the impacts of climate change, are changing the definition of success for most industries but are especially resonant for insurers.

Long-term value creation embraces the principles of the environmental, social and governance (ESG) movement to create a sense of organizational purpose that is sustainable and rooted in the interests of all stakeholders. It acknowledges that superior financial returns are required to remain relevant and are best obtained by focusing strategy squarely and sincerely on meeting the needs of customers, employees and society over the long haul.

For insurers, this can include creating products to meet emerging customer needs; promoting employee wellness programs; improving coverage availability for low-income communities; and embedding the effects of climate change more completely into underwriting, investment, and client and vendor selection decisions. For example, some insurers have halted underwriting coverage for new oil and gas projects, making those initiatives more difficult and costly to pursue. The industry collects about $18.5 billion in premiums related to oil and gas projects.¹

Many insurers pay lip service to ESG-related challenges, piloting stand-alone initiatives or doing what is necessary to be compliant. Still, they don’t make ESG core to their organization’s purpose, brand and culture. Supported by meaningful metrics and a fit-for-purpose business model, a long-term value strategy can elevate a company’s brand, enhance its operational resilience and drive profitable growth. To thrive in this more purpose-driven environment, insurers can reframe their strategies around four long-term value pillars: customer, people, society and financial.

ESG-related issues can expose insurers to a variety of reputational and financially material risks that demand attention. For example, the first three quarters of 2021 witnessed a record $104.8 billion in weather- and climate-related losses, many covered by insurance claims. Through the second quarter of 2021, insurers lost an estimated $37.4 billion² due to the pandemic, while civil unrest in 2020 resulted in another $2 billion in losses.

At the same time, scrutiny from investors, regulators and others of how insurance companies incorporate ESG principles into strategy is growing. For example, in March 2021, a group of US senators wrote to the CEOs of large property and casualty (P&C) insurers asking if their “underwriting and investment policies pertaining to coal and other carbon-intensive projects” are consistent with broader sustainability commitments.³

All of this is playing out against a backdrop of rapid technology transformation, changing customer expectations and intensifying competition from InsurTech firms that are making social impact central to their value propositions. For example, one InsurTech firm gives underwriting profits to nonprofits that are selected by customers, creating a stronger, more personalized bond between insurer and insured.⁴

Trust, so critical to the insurance industry success, is often lacking. Customers regularly see headlines⁵ about denied claims and rising industry profits, while concerns about issues like underwriting bias⁶ can pose reputational risks. In the EY 2021 Global Insurance Consumer Survey, 16% of US consumers said they had ended a relationship with an insurer due to a decline in the company’s reputation or reports of corporate misdeeds, while 18% chose an insurer because of a positive reputation.

Increasingly, success is built on trust and creating long-term value by meeting customers’ evolving needs, creating supportive, purpose-driven workplaces; and committing company talent, resources and statures to help address society’s problems.

The kicker: evidence shows that proactive steps, such as lowering a company’s carbon footprint or committing to greater community engagement and transparency practices, can benefit shareholders by enhancing a firm’s financial results. A recent study⁷ by Societe Generale found that insurers that reduce coal underwriting and investment could see valuations rise by as much as 9%.

How insurance companies can pursue long-term value (LTV) creation


While some long-term value initiatives involve responding to industry norms, risk mitigation needs or regulatory requirements, the most impactful ones are strategic, set by leadership at the enterprise level to redefine an insurer’s purpose and differentiate it in a crowded marketplace. Key actions to consider include:


1. Identify opportunities for strategic differentiation


Conducting a baseline analysis of long-term value positioning relative to the industry can help target areas where an insurer can employ a broader stakeholder vision to gain a competitive advantage. Insurers can use data analytics to enhance their understanding of customers and establish a long-term value framework to prioritize initiatives that make ESG objectives link to corporate strategy.


2. Accelerate the transformation journey


Adopting new governance practices, operating models, metrics and incentive structures that codify ESG’s central role in corporate strategy can spur business units to embrace ESG-related changes unique to their operations. Prioritizing initiatives, such as emission reduction programs that are consistent with both long-term value creation and materiality assessments, can generate quick wins to give the process momentum.


3. Communicate successes to support the brand and build trust


Measuring the market impact of long-term value strategies and using the data to build a cohesive narrative for stakeholders can build trust and strengthen the brand, accelerating the benefits. Many insurers fail to get full credit in the marketplace for their ESG-related actions.

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Reframing strategy around four LTV value pillars

Insurance companies can drive long-term value by focusing on doing what’s best for key stakeholder groups: customers, people and society; the fourth pillar — sustainable and profitable growth — will follow. By encouraging individual business units — from actuarial and risk management to procurement and marketing — to embed ESG principles into their daily actions, top leaders can leverage the four pillars to drive customer growth, employee engagement and a healthy socioeconomic playing field that supports long-term growth.

Customer value

Leading insurers are leveraging customer data and new technologies to enable dynamic pricing and value-added services and find profitable ways to expand coverage to vulnerable parts of society. For example, new products that fill protection gaps for consumer hospital expenses, electric cars or businesses transitioning to low-carbon operating models can earn customers’ loyalty. At the same time, innovations such as parametric coverage⁸ can help make flood insurance more accessible to at-risk, lower-income communities or help create more personalized and meaningful customer journeys.

For example, Prudential has created an artificial intelligence-driven platform to help customers better understand their spending habits and offer product recommendations based on personal goals they have set.⁹

People value

Investing in employees and supporting their personal and career aspirations can enhance loyalty, make the company attractive to outside talent and create greater support for its strategic priorities. Incentivizing results that benefit customers and society can send a strong message about the insurer’s values.

For example, one insurer has invested¹⁰ in diversity, equity and inclusion (DEI) initiatives, flexible workplace policies and other worker-friendly approaches, which helped lower the voluntary turnover rate to 7.2% in 2020 from 9.8% the year before.¹¹ Employee engagement scores rose to 89% from 85% over the same period.

Societal value

Shaping the company’s value proposition to confront broader societal challenges, such as climate change or social inequities, can drive positive community impacts and help fuel economic growth. Initiatives that replace investments in oil and gas companies with green bonds or provide incentives for policyholders to use solar panels in home construction can show a broader commitment.

For example, the MetLife Foundation is a founding partner in the Common Cents Lab. The initiative seeks to improve the financial well-being of lower- and middle-income consumers by using behavioral science in the design of financial products to help them decrease expenses, manage debt and increase savings.

Financial value

Reframing strategy and business models around the other three pillars can fuel market share gains, capital surpluses, reduced underwriting risks, stronger employee recruitment and enhanced brand value, leading to superior financial results and higher valuations. Reducing industry investments in fossil fuels, which increased 12% in 2019 to $582 billion,¹² would be one way to demonstrate a commitment to sustainability.

For example, Travelers’ return on equity through the first three quarters of 2021 was 10.8%¹³ — a result the company attributes, in part, to its commitment to support customers, workers and society and pursue sustainable business models.¹⁴


The nature of the insurance industry makes pursuing long-term value (LTV) a strategic imperative. Creating a stronger sense of purpose through meeting the expectations of four stakeholder pillars — customer, people, societal and financial — is critical to remaining relevant in an uncertain future.

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