Solving Climate Change Starts with C-Suite Leadership

August 15, 2022 by

From a global pandemic to unprecedented racial, social and political turmoil, to sustainability and climate change, senior executives across industries have been forced to deal with a range of issues that have not historically been considered central to the business.

Within the insurance sector, climate change is a business imperative — perhaps the most urgent challenge the industry faces. The associated economic losses — up by 250% in the last three decades, with natural catastrophes producing a 3.6x increase in insured losses and 2x increase in non-insured — are certainly cause for alarm.

But climate change presents not just a huge financial threat.

Insurers that develop new protections and risk prevention solutions for consumers, companies and communities will simultaneously mitigate risks, increase their relevance and position for growth.

Yet recent research from Capgemini and Efma confirms that few insurers are seizing the moment. Based on surveys of 5,000 insurance customers and 275 insurance industry executives, we found that only 8% of insurers are on course to achieve climate resiliency. We think that number is shockingly low and represents a wake-up call for the industry to accelerate its climate change strategies. Making the industry carbon-neutral is just the beginning. Unless more insurers rethink their product lines and recalibrate their investment portfolios, more regions may face an insurability crisis.

Our research identified resilience champions within insurance as those firms best positioned to help customers protect themselves and to facilitate the shift to a greener economy. What makes resilience champions different? First and foremost they have advanced data analysis capabilities focused on risk-prevention. For instance, nearly 60% deploy pricing models based on machine learning, via sophisticated scenario analysis and stochastic modeling, compared to only 35% of average insurers. They also use more data — typically, seven or more new data sources (e.g., satellite and geo data, feeds from remote sensors and social media) — to gain real-time risk visibility.

These capabilities pay off for customers in multiple ways. Automated notifications give policyholders time to take protective measures before disaster strikes. Faster, more personalized experiences for catastrophe claims are another benefit. Given the negative press the industry has received in the wake of recent events, enhancing the claims process is critical.

Change Starts in the C-Suite

Resilience champions are also notable for senior-level leadership and advocacy; 80% have already named a chief sustainability officer or equivalent.

To be clear, only C-suite leaders and boards can provide the long-term vision and operational focus needed to become resilience champions. Launching new products, recalibrating investment portfolios, reimagining underwriting strategies — these actions must be led and coordinated from the top of the organization and throughout what will be a long journey.

Our research defined three other essential steps for leaders to take:

Now is the time for insurers to step up and help society address its most significant challenge. Their risk management expertise has never been more valuable. But this isn’t a matter of altruism; firms that can enact the necessary transformation can generate deeper customer trust and boost their relevance and profitability. In this sense, what’s good for the insurance industry is also good for companies, citizens and communities everywhere.