In the ‘old’ days CSR – corporate and social responsibility – was a form of self-regulation for companies ensuring that their actions have a positive impact on the environment, on employees, on communities and on customers.

ESG – Environmental, Social and Governance – is the natural evolvement of that and has taken the philanthropic approach of CSR and turned it into something more concrete, more quantifiable, and importantly something that can be used by investors and consumers. We know that sustainability has become increasingly more important for consumers – nearly one in three (28%) consumers – increasing to 45% for millennials – claimed to have stopped purchasing certain brands because they had ethical or sustainability related concerns about them [1]. The same research indicates that consumers equally value the importance of waste reduction, reducing carbon footprint and producing sustainable packaging.

The same level of interest applies to investors across all industries and sectors – and insurance isn’t any different.

Even before COP26, the call for reducing emissions and decarbonising business operations has been growing louder and supply chains have always been considered key to achieving a low carbon world. In 2020, British NGO CDP (formerly the Carbon Disclosure Project) found that supplier emissions are on average 11.4 times higher than operational emissions so the agreed environmental values between you and your suppliers is essential to achieving net-zero targets.

We know that many people have a vested interest in ESG for a variety of reasons so it can be difficult to know where to start and define your ESG plans for the claims supply chain.

That’s where Procurato can help.

ESG in Insurance

The COP26 conference has set the goal to achieve global net-zero by mid-century and keep 1.5 degrees within reach. To deliver these targets, countries will need to reduce their dependence on fossil fuels, encourage investment in renewables, speed up the switch to electric vehicles amongst many other initiatives which include recycling.

In the world of insurance, the claims supply chain is one of the biggest contributors to carbon emissions.

Take home insurance as an example. Traditionally a customer makes a claim, the insurer processes that call and sends a loss adjustor out to visit. Upon receipt of that report and depending on the impact of the claim builders, decorators and electricians will all visit at different times to create quotes and do the work.

But what if we thought differently? What if the customer can simply film the damage on their phone after being given some clear instructions on what is needed? What if that footage meets the need of the loss adjustor, the builders etc so that the only footprint is the repairs? What if the insurer can manage the logistics so that it’s just one driver, one van and multi-discipline labour to get the job completed with the minimal of visits? Estimates suggest that by doing this the carbon footprint could be reduced by 40%[2].

There are numerous ways to reduce the carbon footprint of home claims:

• Concrete alternatives
• Recycling plastic windows
• Recycling carpets
• Flood prevention
• Alternative transport to customer visits
• Virtual claims handling

Not only do they provide a more sustainable alternative, but they could also be cheaper and provide an improved, streamlined experience for the customer.

And what about motor?

Repairing parts rather than replacing them has proven in certain circumstances to reduce carbon emissions. Procurato is currently undertaking research into the most appropriate methods for measuring carbon reductions in repairing parts.

But when repair isn’t an option, the use of green parts is. Recent research has revealed that 69% of motorists would want their vehicle to be repaired with green parts to protect the environment [3]. Whilst some still perceive these parts to be inferior or unreliable the opposite is true with all secondhand parts having to meet strict safety standards produced by the original equipment manufacturer or sourced from similar vehicles.

Insurers who have embraced a green parts strategy have seen significant benefit and reduced costs – in fact, these parts could be up to 60% cheaper than sourcing new ones. Data from Warrantywise suggests that drivers can save almost £3,000 on significant repairs. Not only that but studies show that around 400,000 vehicle parts could be spared from going to the landfill every year simply by using 10% more green parts – and that’s just in the UK.

Apart from repair and recycle there are other processes that can become more sustainable. In auto body shops up to 100% of VOC (volatile organic compounds) emissions – a major air pollutant – and more than 50% of energy consumption can be attributed to painting processes. Water-based paints provide an environmentally friendly alternative as they use considerably less solvent than traditional body paints.

Yet despite these positive environmental, cost, reputational and consumer benefits British insurers use green parts for only 2.3% of their motor repairs on average.

The challenges for net-zero

Whilst the opportunities to become more environmentally friendly speak for themselves in terms of meeting the needs of the government, the regulators, investors and consumers, the real challenge for the C-suite is to balance them against commercial profit. Investment will be essential.

But to take you back to whether the payback is worth the money and the effort – the answer is yes. Whilst achieving net-zero will be a challenge if your business does not move fast enough you may become a so called ‘stranded asset’ in terms of insurance provision or investment.

According to KPMG, what is clear right now is that corporate risk managers and re-insurers will need to work together to understand the risks and opportunities to making the transition to green and that in order to survive in the market will need to understand new technologies, new products, new investment and new ways of working.

Related reading

The list of home claims sustainability opportunities in this article sets out the what, but not the how. Moving from a list of initiatives to an operational supply chain that delivers on them consistently requires supplier frameworks, measurement infrastructure, and procurement disciplines that most insurers have not yet put in place. Our article on sustainability in property insurance repair takes the home claims sustainability agenda into that operational detail, examining how insurers can build repair-over-replace strategies, embed recycled materials into supplier contracts, reduce travel touchpoints, and establish the carbon tracking frameworks needed to turn sustainability objectives into reportable outcomes rather than intentions.

How Procurato can help

The benchmarking and maturity model approach described at the close of this article is exactly what our Insurance Claims Supply Chain Development service delivers: assessing your current claims supply chain against commercial, operational, and sustainability criteria, identifying where performance has drifted or where greener alternatives are viable, and building the supplier frameworks and governance structures needed to make the improvements described in this article consistent rather than ad hoc. Whether you are starting from scratch on your ESG supply chain plan or looking to accelerate progress already underway, we are happy to talk through where a structured review would be most useful.

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Resources

[1] Deloitte: Shifting Sands – Are consumers still embracing sustainability.

[2] Procurato has found no specific research that has been undertaken for insurance claims but estimates across supply chains suggest the reduction around 40%. (World Economic Forum. (2021) Net-Zero Challenge: The supply chain opportunity, [online] Available at: https://www3.weforum.org/docs/WEF_Net_Zero_Challenge_The_Supply_Chain_Opportunity_2021.pdf)

[3] – Allianz Insurance Survey carried out by One Poll October 2019.