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Jérôme Crugnola-Humbert
Chairperson AAE – Sustainability and Climate-Related Risks Working Group |
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The potential of insurance as a positive social factor has long been understood: some Ancient Romans maintained subscription payments to burial societies – rather like life insurance premiums – which would cover their funeral costs after death. Earlier still, Ancient Greek maritime law decreed that in the event of cargo being jettisoned from a ship to lighten the load, the cost of the loss should be shared between those whose cargo reached its destination as well as the affected parties. Society has undeniably been shaped by the capacity to collectively share and manage risks which could not be borne by an individual.
Back in the modern day, ESG is becoming a familiar concept in insurance and elsewhere, and it is increasingly embedded in policymaking too. However, so far there has been a tendency for the ‘S’ (Social) to play only a supporting role compared with the ‘E’ (Environmental, and in particular climate change). Although this is reasonable to some extent, given that the consequences of climate change are highly relevant to insurers, there is now a need for the insurance industry to sharpen its original focus on the S, and to be as ambitious in this area as it should be on environmental issues.
The challenge is complex, not least because the two considerations may sometimes suggest opposing responses: for example, while economic development is generally counted as a positive social factor, it is still widely predicated on affordable fossil fuel energy – so alleviating social issues today may lead to irreversible environmental damage which disproportionately affects the poorest tomorrow. Similarly, while AI and other tools for more precise risk assessment could help to maintain or even extend coverage, they may equally enable a situation where the more vulnerable people are increasingly excluded. One way insurers could respond more usefully is to identify underserved populations as an opportunity and design new products that specifically meet their needs.
The recent AAE discussion paper, “Social sustainability in insurance: what, who and how”, explores these and other social matters in detail. Taking a broad scope, it concludes with specific recommendations that the insurance sector should implement if it is to demonstrate a genuine commitment to social sustainability in the way it serves customers. Including real-world examples, reflections on differentiation vs. discrimination, a summary of relevant regulatory developments as well as an examination of questions such as “who does insurance serve?”, the paper is an engaging and valuable resource for discussions about the future of insurance.
07 March 2024
This blog is written on a personal title, with the assistance of Yestrans.
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