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Sustainability In Insurance Industry | India

Pranab Ghosh
21 Apr 2023

India has a total of 55 insurance companies, out of which 31 are general insurance companies while 24 are life insurance companies. In 2020, the Indian insurance market was ranked eleventh globally (in terms of premium volume); and its share in the global insurance market was 1.72% (with a premium volume of $107.9 billion), states the latest annual report by the Insurance Regulatory and Development Authority of India (IRDAI).

The most important issue in today’s world is climate change characterized by the continuous rise of atmospheric temperature which calls for a firm commitment towards Sustainability. In the Climate Economics Index which examines the overall climate resilience of countries, India was ranked in the 45th place among 48 countries which together represent 90% of the world economy. India’s agriculture and tourism sectors, which respectively accounted for about 18% and 9% of the country’s total GDP in 2020, are particularly susceptible to the fallouts from climate change1.

In the most extreme climate scenario, assuming a 3.2°C rise in temperature, India’s economic losses are expected to amount to more than 35% of the country’s GDP2. Therefore, Sustainability goals and commercial interests are strongly aligned and need to be addressed as an urgent priority.

The ‘Sustainable insurance’ approach

Sustainable insurance is a strategic approach where all activities in the insurance value chain are done in a responsible and forward-looking way by identifying, managing, and monitoring risks and opportunities associated with environmental, social, and governance issues.

Insurance companies which were proactive with respect to climate change in the early 2000s are now the market leaders in terms of transitioning to a low-carbon economy. On the other hand, companies that are now in the nascent stages of sustainable insurance approach are likely to face negative brand consequences and would need to stringently comply with green norms. It would be fair to say that insurers are approaching the “lagging era” in 2022, as compared to the “leading era” in 2000.

Role of insurers in advancing the Sustainability agenda

According to the World Meteorological Organization, over the last 50 years a disaster related to weather has occurred every day on an average killing 115 people and causing $202 million in losses. In the South-East Asia region, India has reported around 321 disasters in the last 20 years. In 2021 alone three cyclones, two floods, and an earthquake caused massive losses in the Indian sub-continent.

Consequently, the insurance industry could play a monumental role in accelerating the shift towards a more sustainable community. This is because insurers are not only protection providers but also act as risk managers and social influencers who play a major role in educating and spreading awareness in society. Mentioned below are a few such initiatives:

Insurers could allow customers to participate in their Sustainability mission by offering green loyalty reward points for taking steps towards a sustainable future.

Insurers need to focus on providing sustainable insurance products which could be helpful in driving Sustainability.

Insurers could offer flexible premium rates in auto insurance policies which may vary based on the miles driven. This would encourage customers to drive less as they would need to pay lower premiums for their policies, which in turn would help in reducing carbon emissions.

Leadership in Energy and Environmental Design (LEED) is a well-recognized green building rating system which focuses on designing and building energy-efficient and water-conserving buildings using green and sustainable material resources.

Insurers could offer premium discounts to customers who use or purchase electric or hybrid vehicles. Additionally, premium discounts could also be offered by insurers for buildings which follow a certain level of efficiency and Sustainability standards.

Insurers could cover the cost of restoration or rebuilding of property as per the ESG or green certificate building norms, whenever there is a complete damage to property. Green buildings are those which eliminate the negative environmental impact and create a positive impact on the climate and environment.

Insurers could also act on Sustainability by creating advertisments explaining the importance of a sustainable future and the impact on current environment due to various factors, such as climate change. These would have a two-fold effect, raising awareness about both insurance and Sustainability.

Sustainability initiatives of global insurers in India

Global insurers operating in India have been at the forefront in adopting Sustainability by taking definitive action.

  • Munich Re has started to offer performance coverage for battery storage. It has developed new coverage solutions for manufacturers of photovoltaic projects which include compensation against guaranteed trigger.
  • Swiss Re has announced that by 2023 it would stop providing insurance to the world’s top 10% of the most intensive oil & gas producers and stop investing in them.
  • Genrali has created a competence center to ideate and share best practices in underwriting the specific risks in the renewable energy sector.
  • AIG has established an ESG divided fund to promote sustainable and impact investing; and it is also promoting natural catastrophe risk modelling and climate risk anticipation/pre-emption.
  • Cigna has adopted a strategic Sustainability performance plan designed to manage global real estate portfolios with focus on emission reduction, energy efficiency, reusability/recycling, and waste management.
  • Liberty Mutual has developed a new stochastic wildfire model by adjusting their latest wildfire model to better match their underwriting practices with latest information on weather.

Steps taken by Indian insurers towards Sustainability

Insurers in India are following common environmental, social, and governance (ESG) frameworks in their organizations to achieve Sustainability in their operations. These common steps are as shown in the figure below:

General Insurance Council (GI Council), representing 45 non-life insurance and reinsurance companies in India has recently become an institution supporting the Principles for Sustainable Insurance (PSI)  ‒ a sustainable insurance initiative by the United Nations (UN). The GI Council decided in an Executive Committee meeting to join the PSI initiative to promote awareness about sustainable insurance and ESG norms within the Indian general insurance industry.

Thus the Indian insurance industry is in the early stages in the adoption of Sustainability; and insurers therein are yet to take firm actions in the journey towards Sustainability.

Indian CxOs’ views on Sustainability

We believe that adopting the United Nations supported Principles for Responsible Investment (UNPRI) will nudge corporations to enhance focus on ESG initiatives to build sustainable businesses.

‒ Manish Kumar, Chief Investment Officer, ICICI Prudential Life

HDFC Life is committed to industry leading ESG standards that will help shape a sustainable future for the communities we serve and creating long term value for all our stakeholders.

‒ Vibha Padalkar, MD & CEO, HDFC Life

We, at ICICI Lombard, are actively adopting a holistic approach that takes Environmental, Social, and Governance aspects into consideration whilst formulating all our business plans and goals.

‒ Bhargav Dasgupta, MD & CEO, ICICI Lombard

In this journey towards making a sustainable change, we are adopting the Environment, Social, and Governance (ESG) approach, which will help us to evaluate and define the extent to which we are working towards our social goals, which go beyond our role to maximize profit to create a wholesome future for all our stakeholders. Though we have just embarked on the journey of capturing our ESG initiatives, it is already clear that ESG is the way forward for businesses to do the right things in the right way.

– Tapan Singhel, MD & CEO, Bajaj Allianz

The General Insurance Council will endeavor to promote the adoption and implementation of the Principles for Sustainable Insurance throughout our membership. The Council is focused on efforts to work with members and key stakeholders in accelerating the transition to a zero-carbon future while helping people build resilience to climate change.

‒ MN Sharma, Secretary-General, General Insurance Council


India is among the countries which are  the most vulnerable to climate change in the world; and it is estimated that the country is incurring losses of about $9-10 billion annually due to extreme weather incidents3. Insurers carry the financial burden of climate change-induced natural disasters and play an important role in how society recovers from these disasters.

However, Indian insurers fare poorly when it comes to covering climate-linked losses, since nearly 80% of these losses remain uninsured in the country. In comparison with global insurers, Indian insurers have been laggards in adopting sustainable practices & products and in incorporating climate risk assessment in the investment and underwriting decision-making processes. Indian insurers were in the bottom 10% in terms of the quality of their Climate Related Financial Disclosures, according to a report by environmental platform Climate Trends.

Indian insurers need to proactively take steps to integrate Sustainability into their corporate strategy. Preliminary steps could be taken towards creating green buildings, green IT, and sustainable product design, while subsequent steps could be taken in sustainable investments and green underwriting.