Ethical insurance: protection for the days when it goes wrong

Insurance is for those days when not everything goes quite to plan: a way to be prepared for uncertain loss. Insurance companies are there to fall back on when misfortune strikes.

But like most other types of finance, insurance companies are largely not taking green and ethical considerations into account. Charlotte Reid and Rob Steadman look at the state of ethical insurance.

The UK insurance industry is the third largest in the world and the largest in Europe. According to a recent report by the Office of National Statistics (ONS), the UK insurance industry was worth more than £117 billion in 2010. It is a vital part of the UK economy, managing investments amounting to 26% of the UK’s total net worth.

However, the insurance industry grasps the importance of environmental issues because it frequently has a direct impact on their work. For example, as climate change makes flooding a much more regular occurrence it is the insurance companies that have to pay out more in claims.

According to the Association of British Insurers, the damage caused by the summer floods back in 2007 cost the industry £3 billion. This is now being felt by customers who have been warned that house insurance premiums could rise for homes that are at a risk of flooding.

“Customers want an insurer who treats them fairly and responsibly”

The key question regarding ethical insurance is to know which shares the money is invested in. This didn’t happen until February 2011, when The Co-operative Bank became the first to ethically screen who they were investing in.

This was introduced as part of The Co-operative’s new Ethical Operating Plan, which encouraged their customers to join the revolution in order to build a more sustainable economy.

One of the key targets of the plan is to introduce the world’s first ethically screened general insurance product, which will support over two million policies.

A spokesperson for The Co-operative Banking Group said, “The unique ethical policy that underpins the ethos of The Co-operative Bank will now be applied to its general insurance (GI) arm, meaning that none of the £18 billion of assets held by both The Co-operative Bank and The Co-operative Insurance’s GI business will be invested in companies that do not meet strict ethical criteria”.

The Co-operative thinks there is a demand for ethical insurance as they believe that “customers want an insurer who treats them fairly and responsibly“.

Other insurance policies available

Other policies are mostly not as strict as The Co-operative, and nor are they as general.

The Green Insurance Company pays for offsetting carbon dioxide emissions, but this time on cars as part of their motor insurance policy, as well as offering discounts for more environmentally friendly cars.
Kew Insurance’s Simply Green insurance policy rewards environmentally friendly behaviour around the home with a 5% discount.

Meanwhile, Ansvar Insurance Co Ltd offers a wider spectrum of insurance deals, covering home, motoring and travel.

Naturesave offer very similar terms to Ansvar Insurance, but also cover personal accident and illness. This is as well as putting 10% of its personal premiums in a fund that helps environmental and conservational projects, and offering clients a free environmental review whilst trying to use suppliers that support sustainable business.

Reinsurance

Insurance companies have their own form of risk management in the form of reinsurance.

Only a select group of companies deal with reinsurance worldwide, so it is unlikely to find an ethical one.

However, the reinsurance industry is aware of the impact of global warming, as they also feel the consequences of it in their work.

Reinsurance companies are large investors, playing an important role in the choice of companies to invest in. Companies could, in theory, face increasing pressure from these investors to reduce carbon dioxide emissions and to prove that they will reduce their emissions in a cost effective way.

Essentially, if climate change continues in the way that is predicted, then reinsurance companies are set to make huge losses.

Munich Re and Swiss Re, two of the world’s largest and leading reinsurers in the world, believe it is a social responsibility of a company to have a small environmental impact.

Reinsurance companies want to help gain an understanding of climate change, and Munich Re helped to set up the Munich Climate Insurance Initiative (MCII), which supports developing countries adapt to climate change.

On top of that, Munich Re, working alongside the London School of Economics Centre for Climate Change Economics and Policy, helps others to understand climate change, too. This collaboration was set up to look at the current state of climate modelling, and to improve the way that this information is then used.

For the past 20 years, Swiss Re have similarly been working on gaining more of an understanding of climate change, and have helped with the development of products such as weather risk insurance and other insurance products tailored to specific situations.

As well getting more information about climate change and the impact of it, the companies have also been offering incentives. Swiss Re offered their employees benefits and rewards for lowering their carbon footprint; refunding them up to 5000 Swiss Francs if they invest in technologies that work on reducing CO2 emissions.

Meanwhile, Munich Re was involved in the world’s first insurance of Fuhrlander, the German builder of wind farms, insuring the guarantees given to its customers. This was to help underwrite the risks of the renewable sector, making it seem attractive to investors and helping future growth within the field.

What to do

For the ethical and conscientious people out there, checking both your insurance company’s investments and the nature of their reinsurance may give you that extra peace of mind in your desire for a blue and green tomorrow.  

If you would like to know more about ethical insurance and reinsurance, ask your financial adviser if you have one, or complete our form and we’ll connect you with a specialist ethical adviser.