Sustainability is a key concern for Swiss private insurance companies. Back at the start of 2020, the Swiss Insurance Association (SIA) placed sustainability at the centre of its Strategy 2020–2024. Over the course of last year, a number of its committees developed measures to facilitate implementation of the strategy and support efforts to transition to a sustainable way of doing business.
The SIA is publishing its third sustainability report, containing information about the insurance industry’s progress and priorities in this area, which is a key concern for the whole of society. This report contains data and information on the social, financial and environmental aspects of sustainability in the industry, showing the advances that Swiss insurers have made and highlighting the challenges they face.
The Sustainability Report 2021 drew on the results of surveys of insurance companies and on interviews with industry experts. Structured dialogue with stakeholders including policymakers, academic institutions, NGOs and member companies was carried out for the first time in the run-up to compiling the report, and the findings fed into it.
2021 was an eventful year for the SIA and private insurers in many respects. Anthropogenic climate change is evident in many extreme weather and climate events occurring across the world. Switzerland, too, was hard hit by summer storms, which caused insured losses of over CHF 2 billion. The country’s well-established dual insurance system for natural hazards limited the financial impact on citizens because, unlike in other countries, over 90 per cent of the losses were insured, sparing the cost to the public purse.
By shouldering the financial risks and introducing preventive measures, the Swiss insurance industry plays a crucial role in the economy as a whole.
This single event shows clearly how important insurance is to the economy when it comes to sustainability risks and climate change. By shouldering the financial risks and introducing preventive measures, the Swiss insurance industry plays a crucial role in the economy as a whole.
‘As much regulation as necessary; as little as possible.’ At the SIA, we believe that this basic principle is especially important when it comes to sustainability. As such, the regulatory measures put in place to achieve sustainability goals should be as light-touch as possible. It should be noted that climate change is not a new risk in and of itself; instead, it is an additional risk factor that has repercussions for existing risk categories. The effects of climate change are therefore reflected fully in the existing regulatory capital requirements.
‘As much regulation as necessary; as little as possible.’
This means that, despite the impact of climate change, insurers are in an excellent position from a financial and risk management perspective to fulfil their role as risk carriers for society. International standards on transparency are becoming ever-more important, with international frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations increasingly being adopted in full by national legislators.
The SIA is committed to transparency, as shown by this report, but it hopes that these international standards will not be subject to a ‘Swiss finish’ in which requirements are made stricter. It is also worth noting that efforts to ensure transparency across the entire financial sector hinge on similar action being taken in the real economy.
There are questions around the approaches that should be taken in underwriting – the heart of the insurance business – with regard to assuming sustainability risks. Which risks, such as climate impacts, should be covered? And which should be systematically excluded?
Within the risk assessment, the insurer evaluates the specific risk presented. To date, this assessment has mainly focused on the acceptability of the risk from the perspective of the insurer in question. Reputational risks and the potential for risks to change over the term of the insurance contract are increasingly being factored into these risk assessments. Asa result, certain insurers are drawing up underwriting guidelines for their employees to ensure that they handle sustainability risks in a standardised manner aligned with the company’s strategy.
Beyond underwriting, insurers can also leverage their investments to promote sustainability. In 2021, 80 per cent of the investments that the companies reported to the SIA were linked to sustainability criteria. Methods that are now widely used include integrating ESG factors, applying exclusion criteria, exercising voting rights and impact investing.
In 2021, 80 per cent of the investments that the companies reported to the SIA were linked to sustainability criteria.
Many insurers have years of experience of incorporating corporate environmental protection into their business operations. Monitoring and reducing a company’s own environmental impact are top priorities.
Building energy consumption and business travel were once again the main drivers of companies’ environmental performance in 2021. The carbon footprint per FTE has been cut by 16 per cent across the whole sector over the last three years, with the Covid-19 pandemic and the subsequent requirement to work from home helping to push these emissions down. The number of companies publicly reporting on their emissions continued to increase.
This report also discusses the lack of generational equity in occupational pension provision, which is a key component of financial sustainability. The current situation not only has a long-term negative impact on future generations, but also affects current policyholders in the short term, as the remedial measures that life insurers will have to take will see solutions become more complex and others be withdrawn from the market.
The industry has implemented more projects around social sustainability that aim to make employers more attractive long-term and to promote support for young talent.
After all, mitigating climate change and its harmful effects calls for concerted teamwork between all stakeholders.
The SIA and private insurers are striving to pave the way to a more sustainable economy and achieve the goals set. To do so, they are working with various players and institutions and becoming members of initiatives and alliances, such as the Net-Zero Asset Owner Alliance. After all, mitigating climate change and its harmful effects calls for concerted teamwork between all stakeholders.