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insurers enter the fray

July 2007

Some of the biggest companies in the world’s largest industry sector – insurance – have begun to develop a set of sustainability guidelines.

The Principles for Sustainable Insurance will offer guidance on issues such as how insurance companies can best address climate change, access to healthcare, and poverty. They are being developed by the insurance working group of the United Nations Environment Programme’s Finance Initiative (UnepFI).

The working group, which was set up in 2006 and is chaired by Insurance Australia Group and AXA, says its guidelines will supplement the UN Principles for Responsible Investment (PRI), which came into effect last year for the financial sector as a whole. As the PRI already cover the way insurance companies invest their assets, which in 2005 amounted to $55trillion, (£22.5tn), the new guidelines will focus mainly on non-investment activity.

The first report from the working group, titled Insuring for sustainability, argues that the insurance industry – which pays out around $1tn in claims each year – ‘is a strong lever for implementing sustainability due to its size [and] the extent of its reach into the community.’ Insurance companies received more than $3.4tn of premium income in 2005.

A draft of the insurance principles is likely to be ready by the end of this year, and the final version by the end of 2008.

One key recommendation is likely to be the expansion of ‘micro-insurance’ for the poor in developing countries, where sums insured are small – typically between $50 and $250 – and premiums are usually paid for by taking out a loan with small regular payments. The working group says micro-insurance could protect many people on low incomes from unexpected events, such as damage to their homes or the death of a wage earner, that often tip them into severe poverty.

One company to have explored this avenue is American International Group (AIG), which has a dedicated micro-insurance team and has piloted a low-cost life insurance policy in Uganda covering around 1.6 million households. AIG says that it now sees the field as a business opportunity.

The principles will also address how insurance companies should manage their social and environmental impacts and their response to climate change.

UnepFI hopes that ultimately the principles may ‘help to redefine the conventional perception of insurance from an instrument to transfer risk to a vital tool for sustainable development’.

Members of the working group include Achmea, which is the largest insurer in the Dutch market, Allianz, American International Group, Folksam of Sweden, Lloyd’s of London, Munich Re, Norwich Union, Storebrand, and Swiss Re.

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