In search of sustainability…

Not so long ago, ‘sustainability’ was the driving force predominantly of environmental activists. These days, sustainability is a three dimensional issue shining the spotlight on environmental, social and governance issues; and it’s also a non-negotiable business imperative, embraced by corporates around the world – and none more so than in the insurance sector.

Back in 2009, a United Nations Environment Programme (UNEP) report – The global state of sustainable insurance – understanding and integrating environmental, social and governance factors in insurance’ – warned that the global, long-term and systemic risks posed by environmental, social and governance (ESG) factors can “undermine the solvency of an insurance company and the long-term economic health of the insurance industry, including insureds and entities financed by insurance capital”. The report also recommended that the industry adopt a best practice framework, “focused on ESG factors, tailored to the insurance business, grounded on risks and opportunities, and in line with the goals of sustainable development”.

Consequently, between November 2009 and February 2011 the UNEP Finance Initiative (FI) developed its Principles for Sustainable Insurance. The global consultation process started in Africa, and South Africa was one of the first countries to make its contribution towards articulating the principles, which will be launched at the 2012 UNEP FI Conference on Sustainable Development in Rio de Janeiro.

Once fully fleshed out, these principles will serve as the global framework for insurance companies to better manage environmental, social and governance risks and opportunities in their core business strategies and operations. Once the ESG factors are identified, it will be possible to establish concrete actions to enhance risk management and underwriting practices, stimulate innovative insurance solutions, and catalyse industry action on a range of sustainability issues like flash floods, infrastructural risks due to lack of maintenance, ageing populations and emerging health risks.

Closer to home, the South African Insurance Association (SAIA) is also working hard to entrench, and stimulate, the concept of sustainability. The association will facilitate the creation and implementation of a strategic risk forum – made up of risk experts and strategic thinkers – to look at key risks facing the industry over the next 10 to 15 years. An example of a systemic approach to risk has been previously demonstrated by SAIA’s ‘motor strategy’ where the vision is to collaborate on issues affecting the safety of roads users and decrease the number of accidents. This systemic review of risks facing road users included taking a closer look at factors like driver behaviour, vehicle conditions and increased visible policing. This has led to the support of a number of initiatives like the focus on compulsory third party insurance, testing of the increased use of technology in crime detection and facilitating a review of solutions to address the high costs of replacement parts.

With proactive risk identification and risk management at the centre of the concept of sustainability, it follows that risk financing is essential to support all industry initiatives to enhance risk identification and risk management practices. Since many ESG risks would be difficult, if not impossible, to provide for only in the traditional market, it is expected that collaboration between traditional insurers, the professional reinsurance market and alternative risk transfer providers will become the norm in future.

For further information please contact:
Herman Schoeman
MD of Guardrisk: 011 669-102

Prepared by Melanie Davis
PR@Work: 011 615 3309 / 083 225 7450