By Rick Huckstep
There is little doubt that the insurance industry has at least one eye firmly focused on the impact of technology. Across all segments of the global insurance market, the key questions being asked at the most senior levels all center around tech and how it will drive new business models and change customer engagement.
The evidence for this is clear to see. Ranging from the growing number of new InsuranceTech startups (aka instech or insuretech) through to established insurers setting up VC funds, supporting the FinTech accelerators or building their own in-house innovation labs.
But there is another trend that insurance companies need to keep an eye on. This is driven by an increasing social conscious for green and sustainable products and services.
These two terms are often interchanged but they are not the same. The example often used to illustrate this is bamboo flooring. Bamboo is a renewable resource and therefore ticks the green box. However, since the vast majority of bamboo flooring is manufactured in China and shipped around the world, burning fossil fuels in the process, it does not tick the sustainability box.
For customers across both commercial and personal lines, their requirements are changing with this growth in social conscience. For consumers, research shows a change in values towards more ecological and social sustainability underpinned by transparency and credibility from their financial institutions.
For companies, the development of Corporate Social Responsibility signifies the increased awareness in the boardroom of society’s demand for better behavior and conduct in these areas. However, for the vast majority of businesses, their CSR policy is perceived to be window dressing and has little resonance or connection with their clients and customers. They need to do more!
The net net of all this a combined affect of growing consumer appetite for both green and sustainable products together with the corporation’s desire to satisfy customer demand.
According to a 2014 report from Deloitte, entitled “Sustainable/Green Insurance Products”;
The sustainable/green products and its associated need for green insurance products are growing at a remarkable rate. Given the available government incentives and the cultural shift of a growing environmentally-conscious population, the future market for green insurance markets are optimistic. There are still a lot of coverage gaps insurers can make efforts on, as well as the advancing of green technologies which provide enormous opportunities for those who are bold enough to take them.
The breadth of green and/or sustainable insurance products is wide ranging, from discounts in motor for low carbon offsetting and emissions through to increased weather forecasting and crop insurance (see previous article on Meteo Protect).
And this offers enormous opportunities for insurers to both increase market share and for expansion into new segments.
But this is more than a commercial opportunity for insurers, it has become a commercial necessity. In 2012, the United Nations Environment Programme launched the Principles for Sustainable Insurance. As of July 2015, 83 organizations had adopted the principles, including insurers representing around 20% of world premium volumes.
Whilst the 4 principles are open to broad interpretation, they are clearly all aligned to ensure that insurers consider environmental, social and governance issues across all parts of their business.
Looking closer at the changing social values of consumers I found a report from 2012 by German management consulting firm, zeb. Whilst this report looked at the social demographics of the German market from a banking perspective, its research is relevant to insurance.
Interestingly it showed the link between changing social values and the trust issues affecting this industry. It showed that customer’s perception was that banks were more focused on profits, progress and power and much less on trust, sympathy, family-friendliness, responsibility and stability.
The report drew a parallel with the growth of the organic food industry. Europe’s first organic grocery store was opened in Berlin in 1971 and the market has grown ever since. From 1997 to 2011, the CAGR was over 11% and today Germany is the second largest organic food market in the world.
The organic food market has shown that consumers will pay a premium for commodity purchases when it satisfies their social conscious.
In defining the demographics, the report segmented the survey group into three categories of consumer; social-ecological; sustainability-aware, and conventional, i.e., the rest.
The social-ecological tended to be the youngest segment with below average levels of income and education.
Whereas, the sustainability-oriented group were slightly older and had above-average incomes. More than half had completed tertiary or at least higher secondary education
Amongst these two groups, the report found that 38% would swop to a savings product that paid 1.5% instead of 3% interest if it was a “green” product.
When these two groups were asked about making this decision, the biggest hurdle by far to switching from conventional to green products was the lack of visibility of green products and providers.
To find out more about the growing green insurance market I Skyped with Fabrice Gerdes, the founder of Gruen Versichert (which translates to Green Insured).
Fabrice explained what it is that makes his insurance business green; “the business is green for three reasons. First, everything we do at Gruen Versichert is green first. We hardly use paper, my team all work remotely to cut down on travel and we work hard to give Gruen Versichert a green profile. We also donate 75% of our profits to good causes. Our customers tell us about causes they believe in. Then, we have and an independent panel who decides how the donated profits should be distributed.
“Second, the insurance carriers must also have green credentials, which includes an ethical investment policy. This is more about what they don’t invest in, as much as what they do. For example, nuclear power and arms dealers are definitely no-no’s when it comes to industries the insurers must avoid.
“Finally, the products themselves must be green. For example, with household insurance, the replacement of goods in a new for old policy will incentivize the policyholder to go for items with a high energy efficiency rating.”
Gruen Versichert is an intermediary business that has quickly established itself in the German and Austrian markets, with aspirations to expand across Europe. They have established a strong brand in just over a year and are the first insurance broker to be certified for sustainability from the German Institute for Sustainability and Economy.
A key characteristic of Fabrice’s business is that they offer consumers a choice between green and non-green products. For many products, such as house and motor, the premiums are largely the same. Policyholders can chose these products based on other factors or simply because they are from an ethically motivated insurer.
However, for longer-term products, those that have are investment backed protection products, such as critical illness or income protection, Fabrice still sees a price disadvantage for buying green. “These products can be as much as 30% more expensive to buy!”, explained Fabrice. “But I do believe this will come down as volume increases and the insurers can be more competitive.”
Gruen Versichert is a digital only platform with no offices or high street presence. The site offers online insurance product comparisons through a self-serve capability although should custome
rs need help, they have a live chat facility to answer any questions.
Like the majority of insurance tech entrepreneurs, Fabrice has an insurance background. He has bootstrapped this business himself and is now embarking on raising his first seed round to fund growth through additional marketing and more customer support capacity.
Gruen Versichert is one of a growing number of InsuranceTech distribution businesses coming out of Germany but they are first that I have seen with a focus on green insurance. To be successful, they need the Insurance industry to also respond to the growing change in social values, consciousness and demographics.