The insurance industry, perhaps more than any other sector, is focused on understanding and mitigating global warming, and for good reason: a changing environment could amplify risks, resulting in lower underwriting profits. Yet despite their heightened interest in climate change, few insurers are wholly committed to building a green IT environment.

The operational success of property and casualty insurers (non-life or general insurers) is correlated to the weather. Foreseeing these risks, insurers have enacted premium increases in catastrophe-prone regions, while others have simply stopped writing policies in these markets. However, both of these approaches are insufficient: regulators have tempered rate increases, and while exiting the market may protect against future losses, it diminishes an insurer’s ability to cross-sell other, safer products.

The plethora of climate change scenarios currently cited by environmental agencies, most of which heighten risk exposure, have led many insurers to develop innovative products in an attempt to reduce greenhouse gas emissions. A number of insurers have developed personal lines products that promote eco-friendly behaviors: for example, Travelers offers a 10% discount to hybrid vehicle owners. Other insurers have created divisions to underwrite alternative energy projects. This serves two important purposes. First, underwriting novel risks provide insurers with new pockets of growth. Second, and perhaps more importantly, by assuming the risk of alternative energy projects such as wind or solar farms, insurers are increasing the success rate of the burgeoning industry.

However, despite the insurance industry’s ambition to reduce greenhouse gas emissions in order to mitigate climate change, few insurers have eco-centric approaches to information technology. A survey of 200 global insurers conducted in the first half of 2008 found that over one quarter of life insurers and one fifth of non-life insurers do not consider environmental impact when making IT decisions. Conversely, only 13.3% and 7.5% of life and non-life insurers, respectively, chose the technology or strategy with the least environmental impact regardless of price or performance. The bulk of non-life insurers do indeed consider environmental impact, but, ultimately, place more emphasis on price and performance.

By placing a greater emphasis on performance metrics such as product innovation, time-to-market and sales effectiveness, insurers will be more effective in pushing products with green incentives and developing new underwriting practices focused on the green economy. In a short time, the benefits from more hybrid vehicles on the road or the creation of more wind farms because of the availability of insurance should outweigh the detriments of a ‘non-green’ IT strategy.

Related research: Business Trends: Global Insurance Technology Trends, 2008 (Customer Focus)