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By Dr Hema Prem, Vice President, Insurance Europe at Infosys

The harsh impact of climate change is escalating global insured losses due to extreme natural catastrophes such as floods, thunderstorms, and hurricanes. Recent estimates place this loss at US $105 billion in 2021alone. Even as the economic damage from climate change rises alarmingly, around 50% of weather-induced catastrophes remain uninsured. As a result, governments, companies, and the public are left to bear the burden of repair. 

Insures are essential to bridging this gap. In the future, we may see insurance companies diversifying their role into insurers, investors, and risk managers. But they need to act now to devise climate-related offerings. From a business standpoint, these new offerings unlock new revenue streams for insurers, giving them a sharper edge in the market. Yet, without this swift action, there remains a looming deficit for customers.

This is an opportune time for insurance companies to lead the change by looking beyond traditional risk models and offering innovative, sustainable, and technology-driven solutions to address the climate catastrophe. 

The Role of Technology in New Insurance Offerings 

While there is no single solution to combat decades of man-made impact on climate, steady and surefooted steps in the right direction can bring about the desired changes. Digital transformation paves the way for insurers to create smarter offerings at lesser cost for better outcomes.

  • Strengthen digital transformation with sustainability – Cutting-edge data and technology capabilities will be crucial. The combination of digital and sustainability transformation increases an insurer’s digital density. With these capabilities, insurers will be able to gather raw data from innumerable sources such as satellites, remote patient monitoring devices, or building waste management solutions. Sophisticated analytics with AI/ML can model climate-related risks with more granularity in a hyper-localized fashion. The challenge is to aggregate and harmonize the data to enable decision-making for the different stakeholders of the firm: employees, investors, and clients. So, as part of their digital transformation, they should consider building new frameworks and investing in the right infrastructure to support advanced data gathering and modeling
  • Leverage IoT – The Internet of Things (IoT) creates new data sources that insurers can use to understand the people, properties, and devices they are insuring. This will drive unprecedented efficiencies into risk modeling through real-world insights. With AI/ML-based solutions such as natural language processing (NLP), insurers can tap into unstructured and siloed data to analyze customer habits and organizational behaviour. For instance, in the property and casualty (P&C) insurance business, usage-based insurance (UBI) gives insights into CO2 emissions, encouraging companies to adopt green practices. In the case of individual customers, it can improve daily habits and foster practices that benefit the environment. 
  • Automate aggressively – Automating processes such as claims management can promote internal sustainable operations for manufacturers and streamline claims submission and approvals for customers. In addition, as reporting becomes automated, it will enhance regulatory compliance and improve agility. This also calls for implementing next-gen technology across the insurance organization to ensure transparency across functions. 

Roadmap to Building Sustainable Insurance Offerings 

The larger objective of designing sustainable insurance offerings raises the question of where to begin. As part of their responsibility to the environment, insurers must look at weaving sustainability and ESG into their offerings alongside digital transformation. Clearly, climate-related offerings can revolutionize the insurance market. So, to begin with, insurers should adopt an approach that includes some of these key elements: 

Insurers must realign operations towards sustainable models, bearing decarbonization and emission commitments. It is also important to monitor metrics such as resource usage, the environmental impact of supply chains, and real state footprints for developing sustainability as a core competency in enterprises. Developing and publishing ESG reports that include climate-linked financial disclosures is also crucial in improving transparency and drawing market traction. Global insurance majors such as Allianz, AXA, and Lloyd’s are active in the task force on climate-related financial disclosures (TCFD). 

     1.Enhance asset management 

Insurers need to stay clear of companies that do not comply with ESG standards. Out of Allianz GI’s €582 billion assets under management, €205.5 billion were of their sustainable investment offerings earning them an A+ grade by the Principles of Responsible Investment (PRI) association. Insurers should consider re-analyzing their portfolios to divest from carbon-heavy assets. Indexes such as PRI and UN’s Sustainable Development Goals (SDGs) are the right yardsticks to evaluate their investments.  

    2.Transform risk modeling and underwriting 

The dearth of insurance product offerings relating to climate risk and catastrophe modeling is widening the insurance gap. Insurers can incentivize companies to embed sustainability into their corporate strategies. For example, underwriting of assets that are harmful to the environment can be restricted. Another option is hyper-localized offerings that insure from secondary climate perils. For instance, Aon recently introduced a hurricane catastrophe risk model specific to Florida, known for its tropical cyclone risk.

   3.Enable sustainable pricing 

Advanced technology such as AI can be leveraged in several areas of the insurance value chain. For instance, it can speed up parametric climate insurance payouts. It can be used to automate processes like claims management and monitoring of customers’ ESG compliance. Insurers can also promote climate-conscious behavior among customers through product pricing. 


As the threat from climate risk increases worldwide, the need of the hour is for insurers to reimagine legacy risk models. Insurance companies must consider floating innovative products that include catastrophe modeling to reduce the insurance gap. Insurers are in a unique position to gradually alter the curve of climate change. They can incentivize climate-friendly corporate choices, promote benchmarking of climate-conscious decisions, and invest in carbon neutrality. Leveraging technology such as AI and ML will also be pivotal during this transformation. Automation of processes such as claims verification and adjudication can be used to develop more intricate climate-related products. AI solutions can be used to monitor metrics such as emissions, carbon footprint level, and other ESG compliance requirements by both insurers and customers. The advent of IoT devices has opened up access to multitudes of data that have been largely underutilized. With the help of tools such as NLP and deep learning, fragmented data can be unified and leveraged to diversify insurance product offerings. 

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