The Month of June is largely referred to as ‘Environmental Awareness Month’, since World Environment Day is observed on a day in the month June every year as established by the United Nations Conference on Human Environment in Sweden’s capital Stockholm in 1972.
Events at this conference, notably the Stockholm Declaration, set the tone for placing protection of our planet and its sustainability as an important agenda that sought global consensus on how to achieve a cleaner, greener, sustainable and equitable world.
For relevance of the subject under discussion for Africa, 2022 coincidentally marks the 50th anniversary of the African Insurance Organisation (AIO), which will culminate in the organisation’s 48th conference and annual general assembly in Nairobi later this month.
The theme for this year’s conference, ‘Insurance and Climate Change: Harnessing the Opportunities for Growth in Africa’, lends credence to the importance of assessing the industry’s role in responding to climate change and sustainable development in general. This presents us with an opportune time to share insights on the African insurance industry’s role in pursuing and achieving sustainable development and environmental management.
A report in March 2021 by Access to Insurance Initiative (A2ii) emphasises that insurance as a risk protection mechanism and a builder of resilience, plays a direct role in nine of the SDGs: Goal 1: No Poverty; Goal 10: Reduced Inequalities; Goal 2: Zero Hunger; Goal 3: Good Health and Wellbeing; Goal 5: Gender Equality; Goal 8: Decent Work and Economic Growth; Goal 9: Industry, Innovation and Infrastructure; Goal 13: Climate Change; and Goal 17: Partnership for the Goals.
The report further highlighted how insurance plays a supporting role in two other SDGs: Goal 4: Quality Education and Goal 11: Sustainable Cities and Communities. As one of the world’s largest investors, the insurance sector holds the potential for boosting sustainable development with the 2030 Agenda and SDGs on the horizon. This can metamorphise its role as an underwriter, investor or corporate citizen.
According to the Brookings Institute, the African market as of 2019 was valued at US$68.15billion with regard to Gross Written Premiums (GWP). Although the GWP sum did not essentially discuss GWP by region, the sum in total is highly significant considering the market’s untapped and low penetration levels.
In 2019, the AIO put penetration at 2.79% – far below the global average of 7.23%. These statistics attest to the importance the African market can play within the global industry context in pursuit of attaining the SDGs.
The market can make contributory strides in the areas of:
Policy, Regulatory and Supervision
African government’s political prioritisation of insurance as a resilience tool that can spur economic development and growth is vital. Developing and sustaining deliberate collaboration between governments, regulators and industry practitioners is critical.
As part of policy initiatives, governments can factor sustainability and climate change issues when increasing minimum capital requirements and promoting green capital investors for the market. Sustainable and green finance can drive companies’ focus to align their businesses with sustainable development and climate change adaptation objectives, as well also promoting the channeling of funds managed by insurance companies in greener themes as amplified by the Un-convened initiative – Net-Zero Asset Owner Alliance.
Futuristically, integrating Environmental, Social and Governance (ESG) factors into broader regulation will be an important step.
Through market conduct rules and supervision, regulators can also drive product innovation for the supply side to increase access and inclusivity through tools such as regulatory sandboxes.
Capacity Building and Awareness
On the supply and practitioners’ side, bring a greater understanding of sustainable development and climate change concepts and exposing the role insurance can play toward Agenda 2030 by integrating learning in these areas into curricula and course contents offered at the continent’s many insurance colleges and institutes.
Corporate Social Responsibility (CSR) Programmes
It is a big industry in terms of practitioner numbers, agency networks etc.; these numbers can amplify visibility if companies align their CSR strategies toward environmental restoration initiatives such as beach clean-ups, plastic waste collection, tree-planting exercises and many more. As corporate citizens, companies can elect to reduce dependence on fossil fuels; institute better waste management practices in their locations; implement less paper-use policies, energy conservation; promote gender diversity in recruitment; and look to imbibe ESG issues into their operations.
Increasing Signatories to UN-Convened Initiatives
This article will throw further light on these initiatives and many more terminologies mentioned.
The market in Africa, especially indigenous companies, should acquaint itself with initiatives convened by the UN: such as the Net-Zero Asset Owner Alliance (NZAOA) and the Net-Zero Insurance Alliance (NZIA), which were both launched to generate responses and alignment toward the Paris Climate Agreement. The AIO can take the lead in encouraging member-organisations to become signatories to these initiatives, which will be further elaborated upon in this article.
Products, Technology & Innovation
To close the protection gap, companies on the continent, should conceptualise products guided by market research and develop needs-based affordable products to be distributed by disruptive digital means to increase access and inclusivity. There have been recent initiatives in the international development space to promote insurtech and fintech firms including startups, to stimulate innovation in delivering insurance products on wider and cheaper scale through mobile devices. This has gained traction and must be encouraged.
To further place the narrative of this article in context, it would be prudent to share some antecedents that have been key milestones with regard to efforts being made by the global industry and international bodies towards realising Agenda 2030.
With the rallying global call to action that followed adoption of the Sustainable Development Goals Goals (SDGs) by the United Nations (UN) in 2015, there has been an equal global response from private sector groupings, governments, civil society, academia and many more to develop, conceptualise and implement actions toward finding solutions to mitigate and/or if possible eradicate poverty, hunger; reduce inequalities, protect the planet; and ensure inclusive economic growth among other goals by 2030.
To galvanise and harmonise responses from the global private and public financial sectors toward attaining the SDGs, also known as the Global Goals, the United Nations in its infinite wisdom through the United Nations Environment Programme (UNEP) – the environmental authority that coordinates global environmental efforts which seek to promote the execution of environmental initiatives as part of the overarching quest to achieve the SDGs – launched the United Nations Environment Programme Finance Initiative (UNEP FI) in 1992.
The UNEP FI is a partnership between the UNEP and global financial sector to initiate activities, develop an implementable roadmap as well as mobilise private sector finance for sustainable development. The UNEP FI membership is drawn from banks, insurers and other financial service providers with over 400 supporting institutions.
The insurance industry’s unique position – as global risk managers and restorers of loss – led to launching the Principles of Sustainable Insurers (PSI) at the UN Conference on Sustainable Development in Rio De Janeiro (Rio+20) in 2012.
With full endorsement from the UN Secretary-General and industry CEOs, the PSI is the largest collaboration between the UN and insurance industry; and is a global sustainability framework and an initiative of the UNEP FI
Since its launch, the PSI – formed to serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities – has grown from a small group with over 200 organisations spanning underwriting companies, brokerage firms, regulators… and many more have joined and adopted the Four Principles of Sustainable Insurance.
In one of its communiques, the PSI states its vision as “having a risk-aware world, where the insurance industry is trusted and plays its full role in enabling a healthy, safe, resilient and sustainable society”.
To better appreciate, the four core guiding principles of sustainable insurance as espoused by the PSI, it is vital to broadly elaborate on Environmental, Social and Governance factors (ESG) considering their centrality to the PSI’s work.
According to Avesani and Sparapan in a KPMG report, Environmental, Social and Governance (ESG) factors present the issues (or risk factors) that can affect the economic system’s sustainable development:
Environmental Factors (E) relate to the lack of oversight of climate and environmental risks and/or environmental violations. In addition to creating liability for a company, failure to manage these risks can give rise to sanctions and/or significant costs to remedy the resulting environmental damage.
Social Factors (S) relate to the protection (or violation) of human and labour rights that affect a company’s reputation and reliability as perceived by all its stakeholders (including investors). Reputation impairment can lead to product boycotts, difficulties in raising funds, fines/sanctions and reduced opportunities to do business with third parties such as business partners and suppliers.
Governance Factors (G) relate to corporate governance violations with a transversal impact, including with respect to the previous two factors. Well-designed corporate governance frameworks (e.g. remuneration, working of the board of directors, internal policies etc.) can prevent or limit the violations linked to environmental and social factors, and the associated ethical, legal and business risks which affect a company’s performance.
For the purpose of this article, with regard to the industry as a conduit to achieve Global Goals, ESG factors in simple terms relate to how an underwriting company as a corporate citizen conducts itself which may negatively or positively affect the environment and sustainable inclusive development. On the environmental front, these include but are not limited to:
Its use of renewable energy and/or energy efficient mechanisms – office construction designs etc.
Its response to climate change (business models – development of climate adaption products, refraining from underwriting environmentally unfriendly risks)
Its dependence on fossil fuel
Use and management of water
Waste disposal
Carbon footprint
Paper-use policy
Pollution
Aligning Corporate Social Responsibility programmes to climate themes
Under social mechanisms, this looks at how insurance companies adopt:
Employment equality and gender diversity
Inclusive products
Employee health and safety, including mental and physical health
Human rights
Supplier transparency
Human rights
Governance deals with how an entity sets out its corporate behaviour by instituting measures to ensure compliance with environmental and social factors at the corporate governance level. It looks at aspects such as:
Ethics and Values
Compensation of employees and board directors
Taxation and accounting standards
Fraud
Transparency and anti-corruption
Having highlighted the importance of ESG as a means toward achieving sustainability, the UNEP FI Principles for Sustainable Insurance as declared by the PSI on its website are as follows:
Principle1
We will embed in our decision-making environmental, social and governance issues relevant to our insurance business.
Possible actions:
Company strategy
- Establish a company strategy at the Board and executive management levels to identify, assess, manage and monitor ESG issues in business operations
- Dialogue with company owners on the relevance of ESG issues to company strategy
- Integrate ESG issues into recruitment, training and employee engagement programmes
Risk management and underwriting
- Establish processes to identify and assess ESG issues inherent in the portfolio and be aware of potential ESG-related consequences of the company’s transactions
- Integrate ESG issues into risk management, underwriting and capital adequacy decision-making processes – including research, models, analytics, tools and metrics
Product and service development
- Develop products and services which reduce risk, have a positive impact on ESG issues and encourage better risk management
- Develop or support literacy programmes on risk, insurance and ESG issues
Claims management
- Respond to clients quickly, fairly, sensitively and transparently at all times, and make sure claims processes are clearly explained and understood
- Integrate ESG issues into repairs, replacements and other claims services
Sales and marketing
- Educate sales and marketing staff on ESG issues relevant to products and services and integrate key messages responsibly into strategies and campaigns
- Make sure product and service coverage, benefits and costs are relevant and clearly explained and understood
Investment management
- Integrate ESG issues into investment decision-making and ownership practices (e.g. by implementing the Principles for Responsible Investment)
Principle 2
We will work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.
Possible actions:
Clients and suppliers
- Dialogue with clients and suppliers on the benefits of managing ESG issues and the company’s expectations and requirements on ESG issues
- Provide clients and suppliers with information and tools which may help them manage ESG issues
- Integrate ESG issues into tender and selection processes for suppliers
- Encourage clients and suppliers to disclose ESG issues and to use relevant disclosure or reporting frameworks
Insurers, reinsurers and intermediaries
- Promote adoption of the principles
- Support the inclusion of ESG issues in professional education and ethical standards in the insurance industry
Principle 3
We will work together with government, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.
Possible actions:
Governments, regulators and other policymakers
- Support prudential policy, regulatory and legal frameworks that enable risk reduction, innovation and better management of ESG issues
- Dialogue with governments and regulators to develop integrated risk management approaches and risk transfer solutions
Other key stakeholders
- Dialogue with intergovernmental and non-governmental organisations to support sustainable development by providing risk management and risk transfer expertise
- Dialogue with business and industry associations to better understand and manage ESG issues across industries and geographies
- Dialogue with academia and the scientific community to foster research and educational programmes on ESG issues in the context of insurance business.
- Dialogue with media to promote public awareness of ESG issues and good risk management
Principle 4
We will demonstrate accountability and transparency by regularly disclosing publicly our progress in implementing the principles
Possible actions:
- Assess, measure, and monitor the company’s progress in managing ESG issues and proactively and regularly disclose this information publicly.
- Participate in relevant disclosure or reporting frameworks.
- Dialogue with clients, regulators, rating agencies and other stakeholders to gain mutual understanding on the value of disclosure through the principles.
The PSI since its launch has chalked-up successes and produced relevant literature while engaging global industry players on sustainability issues. Of particular importance is setting up the Net-Zero Insurance Alliance (NZIA) and Net-Zero Asset Owner Alliance (NZAOA) – with insurers and reinsurers pledging to achieve ambitious carbon reduction by aligning and transition underwriting and investment portfolios, in line with dictates of the Paris Climate Agreement on Climate Change, by 2050.
These initiatives are all UN-convened with NZIA established in July 2020 and NZAOA in 2019. NZIA, which is of direct relevance to the core business of companies, was officially launched at the Conference of Parties 26 (COP26) environment conference held in Glasgow, Scotland, in November 2021. NZIA had eight founding leading European insurance companies led by AXA – but has grown significantly with more companies across the global industry signing up to the alliance and adhering to its principles. An African insurer, ICEA Lion Group, is the sole signatory from Africa to the alliance having recently joined.
At COP26 there were calls for brokerage companies and other supporting and related organisations to sign up to the alliance, as the industry seeks to rigorously pursue the agenda of lowering carbon emissions toward implementation of the Paris Agreement.
PSI’s Work in Africa
The African insurance market has been an important area of activity for the PSI. Africa, like other developing and emerging economies, holds promise for the PSI’s initiatives. According to the World Meteorological Department, referenced in an AIO publication, although Africa has not made significant contributions to the effects of climate change, a quarter of worst climate disasters have occurred on the continent.
Effects of climate change in Africa – such as forest fires, droughts and floods – have been well-documented as having affected the continent’s agricultural sector, which is a key driver of growth for many African economies.
Low insurance penetration across the continent, especially in sub-Saharan Africa, has been of great concern as people are always at risk of falling back into poverty without insurance to assist in building economic and financial resilience. Closing the protection gap being experienced on the continent through pursuing initiatives to aid inclusive insurance is one of the PSI’s areas of keen interest.
Since its launch, the PSI has engaged the African market in four (4) market events: held in South Africa in 2018; Nigeria in 2019; Zimbabwe in 2020; and most recently Nairobi, Kenya, in April 2021. There have been running themes at these events, with the intention of exposing the market to risks and opportunities with regard to sustainability issues.
Common themes at these events were:
- Sustaining Food and Agricultural Systems
- Narrowing and Closing the Risk Protection Gap
- Resilient Cities and Communities
These themes for discussion brought to the fore what African insurers can do to support these initiatives and how well-aligned the market is in that direction.
The 4th Africa Market Event held in Nairobi was of huge significance, as the ‘Nairobi Declaration’ on Sustainable Insurance was made. The declaration was a commitment by African Insurance Industry leaders to support achievement of the UN Sustainable Development Goals.
The declaration centred on risk management, insurance, investment, policy, regulatory and industry engagement, sustainable insurance thinking and practice.
The Nairobi Declaration
- Risk Management
Advance the assessment, management and disclosure of climate change-related risks and opportunities, building on the PSI’s project to pilot recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
Advance the assessment, management and disclosure of environmental, social and governance (ESG) risks and opportunities across all lines of business (non-life, life & health, pensions), building on the PSI’s ESG guide for non-life insurance business and other PSI guidance on specific sustainability issues (e.g., illegal, unreported and unregulated fishing; plastic pollution, tobacco risks, UNESCO World Heritage Sites).
- Insurance
Support the Insurance Sustainable Development Goals (Insurance SDGs) being developed by the PSI to harness insurance products and solutions to help achieve the SDGs.
Close the insurance protection gap by actively developing and promoting inclusive and innovative insurance solutions (including through insurtech and nature-based solutions) for households, businesses and governments in order to build resilient cities and communities as well as sustainable food and agriculture systems, among others.
Support the transition to a resilient, net-zero emissions economy, building on the work of the PSI to establish a Net-Zero Insurance Alliance.
- Investment
Support the transition to a resilient, net-zero emissions economy, building on the work of the UN-convened Net-Zero Asset Owner Alliance.
- Policy, regulatory and industry engagement
Engage with policymakers, regulators and industry associations on key sustainability issues for the African insurance industry, including through work of the Sustainable Insurance Forum (SIF), International Association of Insurance Supervisors (IAIS) and Vulnerable Twenty Group of Ministers of Finance (V20)
- Sustainable insurance thinking and practices
Promote adoption and implementation of the four Principles for Sustainable Insurance across African insurance markets.
Enhance knowledge and capacity for the African insurance industry on sustainable insurance.
Shape the sustainable insurance agenda in Africa and strengthen the global effort of insuring for sustainable development.
The Nairobi Declaration reflects the Insurance Sustainable Goals (iSDGs) as promoted by the PSI. In concluding this article, it is important to highlight the role insurance can play directly or indirectly toward achieving some of the goals.
Goal 1: No Poverty – Designing inclusive products across life and non-life lines to restore loss and build resilience, so those at the base of the pyramid do not slip back into poverty after they are afflicted by occurrences of perils such as flood, fire, drought or loss of breadwinner.
Goal 2: Zero Hunger – To ensure food security, smallholder famers – especially producers of staples – need to be protected from the risk of drought and irregular rainfall and flood to ensure bumper harvests. Also, livestock farmers can use insurance to cover the risks of unpredictable and novel diseases which may afflict their stock. A disruption in staple production such as maize can trickle down and affect the availability of poultry feed. Provision of insurance such as credit life for farmers to access loans and also providing agricultural insurance as a means of de-risking financial institutions loans portfolio risks as well as improving non-performing loans for financial service providers and driving down interest rates.
Goal 3: Good Health and Wellbeing – Increasing Universal Health Coverage (UHC) by designing affordable health insurance products to reach wider populations can alleviate the risks of unforeseen health challenges which may afflict people.
Goal 4: Quality Education – Through insurance, support for Science, Technology, Engineering and Mathematics (STEM) – especially for young girls – can be achieved by having long-term endowment products to support children’s education. Life assurance products can also be safety nets for wards to continue their education upon the demise of a breadwinner.
Goal 5: Gender Equality – Promoting employment quality and gender diversity to eliminate gender discrimination in recruitment processes of insurers at both management and board leadership levels. Insurers can also design gender-sensitive products to cater for peculiar risks women may face.
Goal 8: Decent Work and Economic Growth – By increasing penetration, there will be a larger pool of funds available for governments to expand key infrastructure like roads, hospitals and schools. With the development of needs-based products for the MSME sector, insurance can build resilience after losses to promote retention of decent jobs and support economic activity continuity and growth. This also involves boosting entrepreneurs to access capital for expanding their businesses and creating more decent jobs. The insurance industry can contribute significantly to economic growth by making available funds under their management to be utilised and distributed as capital for private sector growth.
Goal 9: Industry, Innovation and Infrastructure – Innovating and leveraging on the use of technological infrastructure to promote digital tools for increasing access to insurance and driving inclusivity. Using mobile technology, innovative digital payment systems can go a long way to increase insurance penetration in Africa. Examples include how the telcos have leveraged on available and new infrastructure to scale distribution of insurance products.
Goal 10: Reduced Inequalities – By developing products which cater for all sectors of the economy, particularly the informal sector, insurance companies can deliver value through risk protection for all – including those at the base of the economic pyramid.
Goal 13: Climate Change – Responding and adapting to climate change, Insurance companies can institute measures as corporate citizens to promote pro-environment activities as part of CSR. Reduce carbon footprints, become energy-efficient, reduce dependence on fossil fuels and refrain from underwriting portfolios which may have adverse effects on the environment such as coal plants. The NZIA initiative shows how insurers have committed to addressing carbon emissions in line with the Paris Climate Agreement. Agricultural insurance can also be used as a climate risk adaptation mechanism for farmers to boost food production.
Goal 17: Partnership for the Goals – Insurance companies can leverage on partnerships with key stakeholders for attainment of the goals. Partnerships with public sector organisations, governments, academia and international development agencies can be harnessed to build the resilience needed to attain the Global Goals and achieve Agenda 2030.
The correlation and interdependence of the Global Goals to insurance cannot be overemphasised. It is clear that, as an industry, insurance can play a very vital role in meeting Agenda 2030. It would therefore be appropriate to rally industry players in Africa (African-owned and global companies with African operations) to take up the challenge and pursue this agenda.
After all, the presence and interventions of international, sustainability and insurance industry-related organisations – such as the Insurance Development Fund, Sustainable Insurance Forum, United Nations Development Programme Insurance and Risk Finance Facility, German Development Cooperation (GIZ), World Food Programme and many others – is ample proof that the global insurance industry with its various partnerships is well-poised to lead the financial sector’s contribution toward achieving the Global Goals.
As a practitioner from Ghana, it would be a great source of pride to witness the PSI Africa Market Event’s being hosted in Ghana and also see companies in the Ghana market signing up to sustainability initiatives.
The writer is a Chartered Insurance Professional with over 13 years insurance practice experience.
He can be reached on: [email protected] and 0508975291.
