[ Forbes ] Insurers Have a Responsibility to Use Risk Management for a Greater Purpose
Life as we know it is at a tipping point in more ways than one. As an advisor who has specialized in sustainable, responsible, and impact (SRI) investing for nearly 20 years, I’ve seen first-hand the commitment of individuals to invest their dollars in companies working to positively impact our planet, society, and future. But is it enough? I certainly applaud anyone genuinely attempting to make change. The more individuals, corporations, sectors, and governments that join this cause, the more impact we have together. However, there is a key player not pulling their weight – insurers.
The insurance industry has a hand in virtually every aspect of our lives: from health to life to liability to accidents. With their teams of actuaries and accountants, they are the ultimate arbiters of risk. They can have tremendous influence over behaviors and policies simply by making adjustments to their risk models, which ultimately affects insurance premiums.
The pandemic and climate change are two areas of risk where the industry needs to step up and take a more significant leadership role. Insurers have the opportunity to use their risk management expertise to adjust premiums for individuals who are vaccinated and for businesses that are addressing climate change risks in their model.
Instead, what we’re seeing is independent businesses take the lead on implementing impactful policies. Delta Airlines recently added a $200 per month healthcare surcharge on unvaccinated workers. Ed Bastian, the company’s CEO, says Delta is spending an average of $50,000 in health care costs when unvaccinated workers are hospitalized with Covid-19. According to a survey by consulting firm Willis Towers Watson, the majority of companies plan on at least implementing vaccine mandates, and as much as 17% of businesses are considering following Delta Airline’s lead of surcharges for those who don’t comply.
Like Delta Airlines, health insurers should be raising rates for those who are unvaccinated to cover the costs of their inevitable treatment. In addition to corporate mandates, this action should help move the needle towards greater vaccination rates. With vaccines readily available in the United States, there is no reason why they should be liable for paying benefits when an individual refuses a free vaccination.
In much the same way, insurers need to be taking a close look at climate change risks when calculating premiums for businesses, homes, and other assets. From more frequent and intense hurricanes to wildfires and droughts, the insurance industry has the opportunity to push their clients to prepare for and mitigate the effects of a warming planet. The recent IPCC report confirms the human impact and the dangerous path we are on.
A 2020 report from McKinsey says, “Insurers must be careful not to underestimate the true threat of climate change. Because its effects are systemic, climate risk is likely to stress local economies and—more grimly—cause market failures that affect both consumers and insurers. More frequent catastrophic events, in combination with the need to meet evolving regulatory requirements, can threaten company business models—and make insuring some risk unaffordable for customers or unfeasible for insurers.” Now is the time to act.
Insurers cannot afford to wait to build in climate change risk into their models. Considering this crucial factor will do two things: 1) It will create a more stable financial situation for the insurer, and 2) More importantly, it will push the insured to make changes to their current situation or business model or risk losing their policy. They could also face the risk of significantly increased premiums. By all accounts, the fossil fuel industry should be priced out of the market by insurers. At the same time, renewable energy and other allied technologies should be rewarded for their intentionally low-impact business practices.
The insurance industry has an opportunity to be a force for good. Using their risk management clout, they can push for more vaccine uptake, greater action on climate change mitigation and resilience, and the adoption of sustainable practices.
Originally published in Forbes.
Featured Image: Adobe Stock @Sabthai
