ESG: How Insurers Can Strengthen Social Sustainability
At its core, the insurance industry is fundamentally about sustainability, ensuring individuals, businesses, and communities can recover and rebuild after a loss. This core function is a key aspect of social sustainability – the ‘S’ within Environment, Social, and Governance (ESG) frameworks – and is the very reason the industry exists.
Insurance provides a financial safety net when cancer strikes, a life is lost, property damage occurs, or workplace injuries happen. It creates continuity and resilience in the face of tragedy, helping people get back on their feet and move forward.
The industry often faces criticism, with some arguing that insurers fail to use their products and investment portfolios to lead society toward a low-carbon future or to support historically marginalized groups. However, these critiques can sometimes miss the point of insurance: the best way an insurer can support a sustainable agenda is to deliver on its core purpose.
There are two primary ways insurance companies can drive a social sustainability agenda:
- Maximize claim payouts vs. operational costs: Reduce overhead to increase the proportion of premiums available to cover losses. This is often known as the efficiency ratio.
- Expand access to fairly priced coverage: Ensure the right product is offered at the correct price for each risk profile.
Although many insurers may already be applying these core practices, improving them will have a huge positive impact on sustainability.
Operational Improvements: A Win-Win
Operational improvements enhance both sustainability and competitiveness, creating a ‘win-win’ scenario. Here are three tangible examples:
The Customer Journey
Existing IT and operational ecosystems have been a major source of cost and sales friction for decades. This has resulted in high expense ratios and a limited ability to offer the right product to the right customer.
The emergence of modern agentic AI has opened the door to real, transformative solutions to this problem. These solutions, which can begin with concierge-type services and grow in sophistication, offer significant advantages:
- Significantly lower operating costs.
- Reduced customer frustration and disengagement.
- Improved alignment between insurance solutions and customer needs.
These solutions benefit both insurers and customers – insurance providers more effectively deliver on their core sustainability mission by offering more coverage at a lower average cost. This also helps them meet business goals by enhancing profitability.
Pricing Sophistication
For insurance to function, it must remain financially viable, which requires accurate pricing. This means that the price must accurately reflect the risk. The California homeowner’s insurance market of 2024-2025 is a prime example of this dynamic.
Fair and widely available insurance is built on accurate pricing, which is rooted in sophisticated segmentation models. Insurers have straightforward opportunities for improvement:
- Incorporate new data sources: Drones, AI analysis of unstructured data, etc.
- Leverage modern, agile data and software platforms, like Earnix, to create more accurate models and move them to production quickly.
Investments in these areas drive both sustainability outcomes and improved business performance for insurance companies.
Fraud Countermeasures
Fraud increases the cost of insurance for everyone without adding any societal value. Reducing fraud in all areas of insurance—from government-funded programs to multinational commercial lines and beyond—increases the availability and efficiency of insurance for everyone.
Technological advancements in this space involve analytics, data, and AI-driven risk models, which create significant advances in fraud detection and mitigation.
So, how can an industry inherently focused on social sustainability become even more sustainable? Insurers can achieve sustainability benefits by improving their core processes of selling, pricing, servicing, and handling claims. The key now is that technology offers new solutions to improve these crucial processes. As an industry, the insurance business can perform better than ever before – and it has the tools to do it. Let’s remember that insurance has always been about sustainability; to enhance it, we simply need to focus on refining our core functions.
Adam Denninger is the Global Industry Leader for Insurance at Capgemini.
