Library: BCG – The net-zero insurer

Executive summary :

Insurers globally must define an integrated strategy that will allow them to pick up the pace of transition to net zero within their own business and across their spheres of influence.

Net zero will be a challenge

Net zero isn’t just a climate imperative—it’s a business one. Across the globe, the accelerating rate of climate change is finally being met with an accelerating rate of action to counter it. The war in Ukraine is not only having devastating consequences for those directly affected, but also imposing hardship on millions of people struggling due to gas shortages and price hikes. In the EU, for example, gas prices have more than doubled since June of 2021. And although wind and solar energy capacity are expected to double between now and 2030, the current fuel shortages have prompted some public-and private-sector leaders to consider returning to old assets such as coal.

There’s no going back

It’s important to prevent this regression. To avoid the worsening effect of climate change and meet the targets set by the Paris Agreement, the world must continue to take swift and decisive action to cut carbon emissions. Reaching net zero will require old assets in nearly every industry to be repurposed, sold, or scrapped in favor of low-carbon, clean-tech solutions. Globally, this transition will require up to $150 trillion in investment.

The insurance marketplace is in an ideal position to foster this transformation. Insurers provide the business interruption protection, casualty and property assurance, and employee benefits that every company needs in order to operate, no matter its size. In the way they set pricing, proffer advice, and manage claims payouts, insurers can help businesses accelerate their path to net zero. The industry also manages more than $26 trillion in assets globally, giving it considerable influence over business decision making. However, while some insurers have set ambitious long-term climate targets, few have articulated short-term business priorities to help reach these targets, and most insurers acknowledge the need to act more swiftly. Now is the time to develop net-zero strategies.

It’ll be worth it

Doing so can pay positive dividends, mitigating the risk of stranded assets and opening up new avenues for value creation. And there is plenty of potential. In the UK alone, BCG estimates that by 2050, green assets will account for about 66% of the property and casualty market. This is up from less than 1% in 2020 and could represent £30 billion in premiums.

The bottom line is that net zero is a net positive not only for the planet, but also for insurers’ future prosperity.

Need for clarity on what to prioritise

Climate transition is complex, and insurers globally have faced a similar set of challenges in transforming their business and portfolios. One obstacle to success has been setting the right focus. To date, many insurers have concentrated on their internal operations and taken steps to improve energy efficiency and lower IT emissions in their offices. But operations and IT represent less than 5% of the average insurer’s carbon footprint on average. In contrast, its investment portfolio typically accounts for 50% to 55% of its emissions output. To get real impact in the near term, insurers must also address their core—their underwriting portfolio and claims management activities, which make up the remaining 35% to 40% (see graphic above)

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