Changes in perception: A trend to watch

Sustainability is an increasingly important issue for many people, especially in the business world. It is undeniable that the topic of sustainability has an impact on everyone and every industry across the world in all aspects and at every level. The insurance sector is no different as it shows an increasing interest in several of the topics covered by sustainability. Insurers who took advantage of these new opportunities were able to capture a new and larger customer base in the market, and a crucial lesson learned is that insurers should always seek out new trends that can help differentiate them from their competitors.

Sustainability and green insurance is the new trend to keep an eye on in the insurance industry. This trend is in line with a theme in the Office of Insurance Commission (OIC)’s Fourth Development Plan which encourages the insurance industry to contribute to Thailand’s sustainable development in terms of environmental, social and governance (ESG) practices and which contemplates the insurance system playing a part in improving the country’s economy and society.

What sustainability and green initiatives look like in the insurance landscape?

There are numerous opportunities to incorporate sustainability into insurance. Sustainability in the insurance landscape may include lower premiums for the green industry or electric vehicles (EVs), determining incentives and tax measures for sustainable/green insurance, promoting new sustainable/green products, and allowing investments in projects that meet the sustainability/green criteria. Sustainable/green insurance could also be in the form of new products intended to address climate change, or products that encourage customers’ sustainability and green behaviors. Moreover, sustainability-related practices are predicted to be incorporated into the operations of businesses and ventures across all industries and jurisdictions. For example, insurance companies may require companies to uphold ESG principles to be eligible for certain insurance policies, and ESG practices can be a condition for a permit or concession required for the project.

A glance around the globe

Globally, insurers are progressively placing a high priority on sustainability. This increased focus began with global awareness on climate change which underlined the need for more sustainable/green products and behaviors. For insurance, promoting and driving sustainability can help insurers quantify risk and thus mitigate risks better. The United Nations Environment Programme Finance Initiative (UNEPFI) Principles for Sustainable Insurance (PSI) is a manual that the UNEPFI released on how the insurance business should manage sustainability issues. In order for insurers to better understand vulnerabilities, risk and mitigation in a more risk-aware environment, this policy guide is intended expressly to help insurers and guide their self-alignment with ESG standards.

Source: https://www.unepfi.org/psi/wp-content/uploads/2012/06/PSI-document.pdf

Examples of sustainability in insurance products

We have seen meaningful movements from international insurers on this front. Sustainable/green insurance could be designed and developed into a wide-range of products. Some examples of sustainable/green insurance products are provided below:

· Green home insurance: Insurers provide homeowners with insurance discounts or add-ons that help them save money and encourage them to construct with eco-friendly materials and consume less energy. In the event that a disaster ruins their homes, homeowners may choose to switch to more eco-friendly materials and appliances because their insurers will usually pay for the higher cost of such replacements.

· Renewable energy insurance: Renewable energy sources have a significant advantage in the fight against climate change, but they are also very expensive and fraught with risks. In order to support their growth and reduce their risks, insurers provide renewable energy insurance policies to technical companies and people. For instance, throughout the project development stage, insurers may cover engineering and construction risks. Others might also provide assistance with revenue loss and business interruption support.

· Property loss mitigation discount: Insurers may consider offering premium credits to homeowners who use mitigation devices or materials or construction techniques which can reduce loss from catastrophes.

· Usage-based car insurance (pay as you go / low mileage discount): Based on how much they drive, this kind of policy offers auto insurance to drivers. Usage-based insurance monitors driving behavior using GPS or mobile phone technologies, as well as through plugged-in devices in car ports. Customers can receive lower rates while lowering emissions because fewer kilometers driven on the road indicates a decreased likelihood of an accident.

· Fuel-efficient discount: Premium discount or special insurance package could be designed and offered to customers using electric or hybrid vehicles.

· Green building insurance: For commercial line, this product could encourage property developers to build sustainable and green buildings which may involve design, specification, and materials to preserve the environment and at the same time protect loss from climate risk.

· Directors & officers insurance: Insurers may consider offering optional environmental or global warming litigation protection to directors due to the increase of litigation cases against corporations that are alleged to contribute to climate change.

While these products may seem new to the Thai insurance industry, some Thailand-based insurers have begun offering products which could fall under the category of sustainable/green insurance. For example, insurance policies that automatically switch on when the driver starts the car, aiming to cut the costs of automotive cover by as much as 40%.

Benefits of the first mover in the Thai market

Sustainability is here to stay and there are advantages to embracing sustainability trends quickly, including but not limited to:

· Becoming a leader in this new field.

· Building a sustainable/green brand name which helps in terms of reputation and also attract customers sharing the same value.

· Increasing market shares by expanding to new sectors such as EVs, green building insurance and green projects insurance.

· Having the ability to offer new/niche products and become a leader in such new or niche markets.

· Operating the business in the new direction that is in line with the regulator’s plan — opening up the opportunity to work alongside the regulator.

Final notes

This article is the first in our Sustainability and Insurance series, with more to follow. We hope you found this to be resourceful and insightful. Please tune in for the second article in this series where we will further discuss Green Insurance in Thai markets and the regulator’s perspective.

Content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee similar outcomes. For more information, please visit: www.bakermckenzie.com/en/client-resource-disclaimer.