Can Green Products and Services in the Insurance Industry be a Sustainable Measure?

Introduction

Eco-innovative and creativity initiatives are practically used in different contextual settings and generate different results accordingly. The insurance setting has seen the urgent call for the requirement of innovative and creative financial strategies and this has not been witnessed as nowadays for the purpose of sustainable well-being. The insurance cover niche is increasingly placing a lot of emphasis on sustainability, given the fact that the effect of climate change on profitability of the industry as a whole has taken its toll (Collier, Elliott & Lehtonen, 2021). Climate change is related to an anthropogenic (man-made) climatic change that leads to an increase in temperatures globally caused by gases emissions like methane and carbon dioxide, also called greenhouse gases. According to a study undertaken by Ernst & Young in 2008, climate change could lead to an increase in environmental challenges, mortality rates and a negative impact of resources control, economic losses, and a lack of profitability (Ernst & Young, 2008). It is undeniable that we have not witnessed events such as an increase in storms, floods, heatwaves and these have caused more than €145 billion as economic losses during the last decade in the European Union showing a trend of an increase of almost 2% annually in economic losses (Eurostat, 2022) . In Africa, an analysis of unpredictable climatic risks events revealed that extreme weather events due to climate change has killed almost 4,000 people and affected the lives of 19 million people since the inception of 2022 in the continent (Carbon Brief, 2022).

Identifying, determining, understanding and controlling the risks are the bedrock of the insurance market (Chummun, 2012). The insurance companies have potential to widen the economic transformation in assisting governments to reach sustainability goals (Muhamat, Jaafar, Basri, Alwi, & Mainal, 2017). As time has elapsed, the providers of insurance have progressively been placing most of their priority on sustainability measures, hence highlighted the need for green sustainable behaviours and green products.

In advocating for the drive and promotion of sustainability, insurers can quantify risk, hence can reduce risks further. The United Nations Environment Programme Finance Initiative (UNEPFI) Principles for Sustainable Insurance (PSI) is a guideline that the UNEPFI released on how the insurance providers should handle sustainability challenges. In order for insurers to better understand risk, vulnerabilities and risk management in a risky-made environment, the policy can easily guide and assist insurers in their self-alignment strategies with environmental, social and governance standards (The United Nations Environment Programme Finance Initiative) [UNEPFI, 2012]. The policy is equipped with four main principles; to embed environmental, social, governance issues relevant to the insurance business in the decision making process; to work together with their clients and business partners to raise awareness of ESG issues, manage risk and find solutions across society on ESG issues; to work together with regulators, governments and other key stakeholders in order to provide actions and last not least to show accountability and transparency in regularly disclosing publicly the process in actioning these principles (UNEPFI, 2012). All the risks have several different dimensions. However the environmental, social and governance profile of a risk is a set of dimension which has only become known recently in the analysis of risk analysis in the insurance segment. On a comparative basis, other types of perils and risks for instance financial risks, the application and understanding of the ESG issues are still at a preliminary stage. Insurance providers in the market place who used and applied these standards managed to cope and increase their customer portfolio and this new trend of doing business could demarcate the providers of insurance cover from their competitors in going green which is a sustainable practice as a new trend in enhancing economic losses and the society as a whole.