5 ways Insurtech drives environmental sustainability in business

At its core, climate change is really simple to grasp. The more carbon dioxide—and other warming gases—that we put into the atmosphere, the higher global temperatures will rise. Between 1850 and 2021, humans released around 2,500 gigatonnes of CO₂ into the atmosphere (1 gigatonne equals 1 billion metric tons). So far, these emissions have led to 1.1 degrees Celsius of warming when compared to preindustrial levels.

To have a 50-50 chance of staying under 1.5 degrees Celsius of warming, we can release only 250 extra gigatonnes of CO₂ into the atmosphere—and that includes emissions from the beginning of 2023. To put that in perspective, in 2022 we emitted 36.8 gigatonnes of CO₂, and global annual emissions are still yet to peak. In other words, we’ve blown our 1.5 degree budget—it’s just a matter of when, not if, we pass the threshold.

By the same logic, other temperature thresholds have budgets, too. To have a 50-50 chance of keeping temperatures below 2 degrees Celsius of warming, we must emit fewer than 1,350 gigatonnes of CO₂ from 2020 onwards. As of mid-2023, roughly only 1,000 gigatonnes of that budget remains.

In an era where sustainability is no longer a mere buzzword but a necessity for survival, insurtech is emerging as a game-changer. By harnessing the power of data, analytics, and digital innovations, insurtech is revolutionising the way businesses approach risk management and environmental stewardship. From incentivising eco-friendly practices to promoting renewable energy adoption, insurtech is paving the way for a greener, more resilient future.

In this article, we will explore five key ways insurtech is driving environmental sustainability in business, empowering companies to embrace a more sustainable path while safeguarding their financial interests.

1) Harnessing the power of satellite imagery for risk assessment

Satellite imagery has long been used by the insurance industry for underwriting and loss prevention purposes. However, insurtech companies are taking it a step further by leveraging this technology to assess environmental risks. By utilising satellite imagery and data analytics, insurtech providers can help insurers identify risk hotspots, assess damage from natural disasters, and develop effective mitigation plans.

For example, Planet Labs is a company that offers insurers satellite imagery and data analytics to better understand their exposure to climate risks. They provide geospatial data and analytics to clients across various industries, including insurance. Another organisation, Space Capital, invests in early-stage companies developing earth observation or geospatial solutions, further supporting insurtech’s efforts in this area.

By using satellite imagery to assess risks, insurers and policyholders can make well-informed decisions that contribute to environmental sustainability. This proactive approach allows businesses to take steps to mitigate risks and prevent further environmental damage.

2) Promoting the use of renewable energy

The insurance industry plays a crucial role in accelerating the adoption of renewable energy. Insurtech companies are actively contributing to this effort by providing innovative solutions and services that support the renewable energy sector.

For instance, insurtech platforms now offer insurance policies specifically designed to protect solar panels and wind turbines from losses caused by failure or malfunction. This coverage provides renewable energy businesses with added protection and incentive to invest in these technologies, knowing that they are safeguarded against potential financial losses.

Additionally, companies like Clir are developing platforms that monitor renewable energy assets and minimise financial risks. Through real-time data and analytics, businesses can make informed decisions about where to invest in renewable energy resources, optimise their management, and provide insurers and investors with greater confidence.

Furthermore, insurance companies themselves are investing directly in the renewable energy industry, contributing to its growth and sustainability. By allocating their resources to finance the transition to a greener future, insurers are not only reducing their environmental impact but also supporting the development of renewable energy infrastructure.

3) Embracing cloud-based solutions for reduced environmental footprint

The insurance industry is a significant consumer of energy, with data centers being major energy consumers. To reduce their environmental impact, insurers are turning to cloud-based solutions. Cloud computing enables insurers to share resources, cutting down on the energy required to power data centers.

According to a study by Insurtech Insights, greater investment in cloud-based solutions improves environmental sustainability by enhancing cooling efficiency, CPU utilisation, software engineering, application architecture, and overall energy consumption. By leveraging cloud-based solutions, insurers can improve communication and collaboration within their organisations, reducing the need for multiple physical data centers.

Cloud-based solutions not only benefit the environment but also help insurers reduce operating costs, enhancing their overall competitiveness. Additionally, cloud computing eliminates the risk of data loss associated with using internal servers, ensuring greater data security and reducing reputational and financial risks for insurers.

By adopting cloud-based solutions, insurers can reduce their carbon footprint, save time and money, enhance the customer experience, and strengthen their cybersecurity measures.

4) Leveraging artificial intelligence and machine learning for enhanced risk management

Artificial intelligence (AI) and machine learning (ML) have opened up new opportunities for insurtech companies to improve risk management practices. By harnessing the power of AI and ML, insurers can observe risks in real-time and provide early warnings about potential hazards that were previously difficult to detect.

AI and ML technologies enable insurers to identify patterns in data, leading to more accurate and timely risk assessments. For example, companies like Tesselo leverage AI in conjunction with satellite imagery to gauge environmental risks. This real-time monitoring capability is crucial in enabling timely action to prevent or mitigate environmental damage.

Insurtech platforms equipped with AI weather prediction models can help insurers assess the financial risks associated with potential losses caused by extreme weather events such as hurricanes, floods, or earthquakes. By providing insurers with accurate weather predictions, AI technologies enable them to make better-informed decisions about pricing premiums and managing risks effectively.

Adopting AI and ML not only reduces environmental impact but also helps insurance companies save costs. By automating processes, insurers can streamline operations, improve efficiency, and allocate their resources more effectively, ultimately contributing to environmental sustainability.

5) Enhancing transparency and decision-making through insurance comparison platforms

Insurance comparison platforms are playing a vital role in promoting environmental sustainability within the insurance industry. These platforms provide transparency by allowing customers to compare insurance products and make informed decisions based on their sustainability preferences.

For instance, Grün Versichert is an insurance broker that offers sustainability-related certificates and products, enabling customers to choose insurance plans that align with their environmental values. By highlighting the green credentials and products of insurance companies, comparison sites can drive the uptake of sustainable insurance options, further reducing environmental impact.

The transparency provided by insurance comparison platforms also benefits insurers. It allows them to make better-informed decisions regarding pricing insurance premiums, ensuring they remain competitive in the market. Additionally, customers who use comparison platforms are more engaged with their insurance policies, leading to better risk management practices and a reduction in environmental impact.

By leveraging insurance comparison platforms, insurers can align their products with customers’ sustainability preferences, promote transparency, and contribute to the industry’s overall environmental sustainability goals.

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