Written by Amita Chaudhury. Group Head of Sustainability, AIA
In recent times, ESG has become a mainstream approach embraced by businesses and investors worldwide. Still, most efforts have been focused on driving the environmental agenda, with social issues accorded much less attention despite being of comparable gravity.
COVID-19, however, evolved the narrative. With challenges such as access to quality healthcare, the increasing wealth divide and the importance of supply chain resilience coming to the fore, a conversation on the importance of social issues was kickstarted and gained momentum.
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In addressing social issues, the life and health insurance industry proves especially relevant give its core function of providing its customers with health and protection and financial support in unfortunate and unforeseen circumstances. Even if these circumstances do not manifest, the industry is able to offer peace of mind to customers in their day-to-day, enabling them to live life to the fullest.
On top of serving the needs of its customers, the life and health insurance industry is also well-positioned to deliver positive social outcomes for a wider group of stakeholders including investee companies, employees, suppliers and the community-at-large. This article explores how the life and health insurance industry can help address the S in ESG– as an insurer, as an investor, and as a responsible business.
As Life and Health Insurers: Extending Life, Health and Wellness Protection Coverage
Insurers contribute to social protection for individuals by cushioning the financial risks and strains associated with ill health, disability, work-related injury, and the death of breadwinners. [1] This is especially important in the Asia and Pacific region, where more than half the population do not have social protection coverage, due to a lack of public investment in a social safety net. [2]
Life and health insurers are equipped to help address this gap. By improving access to quality health care through protection, prevention, prediction, early diagnosis, as well as providing adequate treatment and recovery support, the industry can ensure that its customers health needs are addressed contributing to sustainable development goal 3 – of “Good Health and Wellbeing”.
Keeping people healthier for longer is not only beneficial for the individual, but also eases the burden of care on public institutions. Insurers therefore play a critical role in boosting societal resilience.
Figure 1: AIA contributed to the inaugural United Nations Environment Programme (UNEP) Finance Initiative (FI) Principles for Sustainable Insurance (PSI) ESG Underwriting Guide for Life & Health Insurance. The heat map illustrated above shows the potential impact of a range of growing ESG risks on four key life and health underwriting risks: mortality, longevity, morbidity, hospitalisation.[3]
Notably, in February last year, AIA launched AIA One Billion, a bold ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030. Through health advocacy, advice, partnerships, events, community programmes and campaigns, AIA will engage communities across Asia to improve their physical, mental, and environmental wellness while championing financial inclusion. By the end of the year, a total of 258 million people were engaged through AIA One Billion.
Through championing financial inclusion, insurance industry can help to extend life and health coverage to people who are not traditionally served by the insurance industry by expanding into new markets and communities within those markets. For example, with mental health conditions spiking worldwide in the last decade, life and health insurers could and should go beyond conventional health coverage so that more comprehensive protection is available for mental illnesses, in addition the insurers also have the opportunity to develop innovative propositions that are personalised, relevant, and accessible for lower income groups.
Another area that is coming into focus is the impact of Climate change on human health. The Asia-Pacific region is particularly vulnerable and, in many ways, at the frontline of a changing climate [4]. In recent years there has been mounting evidence and scientific literature linking the devastating impacts of climate change to human and societal health, exasperating ‘S’ issues further. The figure provides an overview of climate-sensitive health risks, their exposure pathways and vulnerability factors. Climate change impacts health both directly and indirectly and is strongly mediated by environmental, social, and public health determinants.[5]
Figure 2: Overview of climate-sensitive health risks, their exposure pathways and vulnerability factors [6]
Through undertaking effective risk assessment and evaluating the impact of climate change on people’s health, morbidity and mortality rates, Life and health insurers have the opportunity to integrate climate factors into underwriting and develop propositions that can help alleviate to some extent the human stress caused by climate change e.g. insurance for extreme heat-related illnesses.
As Investors: Maximising Long-Term Shareholder Value through Sustainable Finance
Sustainable finance presents itself as an opportunity for investors to drive social outcomes through the leverage they wield. As institutional asset owners, considering ESG factors in investment decisions will help insurers minimize ESG risks, grasp opportunities, and maximize long-term stakeholder value.
Figure 3: Global ESG bond issuance, by bond type (in USD billion, 2022 forecast).[7]
Source: Environmental Finance Bond Database, compiled by Moody's
For example, AIA designed a proprietary ESG Rating Scorecard based on a review of ESG assessment methodologies from leading international rating agencies and external investment managers. The ESG Rating Scorecard quantifies the assessment by AIA research analysts of ESG risks and opportunities in our investee companies, and scores these across the individual environmental, social and governance pillars. Social indicators in the scorecard include themes ranging from human capital, human rights, health and safety to social impact.
Other types of ESG investment approaches such as impact investing have also been increasingly embraced by insurers with an objective to deliver positive social impact.
As Responsible Businesses: Empowering Stakeholders
The insurance industry can also address the S in ESG through its function as a responsible business, by reaching towards similar aspirations that corporates in general have towards social sustainability. For example, by fostering a diverse and inclusive culture at the workplace, ensuring supply chain compliance to social sustainability standards, and taking care of the socio-economic wellbeing of the community-at-large.
Figure 4: The insurance industry's primary-level contributions to the SDGs [8].
Joining Hands to Drive Social Impact at Scale
The efforts to drive social impact must be complemented by inter-industry and intra-industry collaboration. The United Nations Environment Programme Finance Initiative (UNEP FI), of which the Principles for Sustainable Insurance is part of, is a stellar example – facilitating knowledge sharing and capacity building amongst insurers and other players from the financial sector to catalyse actions to address complex social and environmental challenges that the world is facing.
Overall, life and health insurers can play a critical role in addressing social issues, not only through the core of their business to build resilience, protection, and enable better life and health outcomes for customers, but also through other roles they play as investors and as responsible businesses. Through collaboration with civil society, governments, industry bodies and multilateral entities, the insurance industry can leverage Partnership for the Sustainable Development Goals in contributing to “S” in ESG.
[1] Asian Development Bank (ADB) (2015). Social Insurance in Asia and the Pacific: 12 Things to Know. Retrieved from https://www.adb.org/news/features/social-insurance-asia-and-pacific-12-things-know#:~:text=Social%20insurance%20is%20a%20form,related%20injury%2C%20and%20old%20age.
[2] ESCAP/ILO Report (2020). The Protection we want: social outlook for Asia and the Pacific. Retrieved from https://www.unescap.org/publications/protection-we-want-social-outlook-asia-and-pacific.
[3] United Nations Environment Programme (UNEP) Finance Initiative (FI) Principles for Sustainable Insurance (2022). PSE ESG Underwriting Guide for Life & Health Insurance (Version 1.0). Retrieved from https://www.unepfi.org/wordpress/wp-content/uploads/2022/06/PSI-Life-Health-ESG-Guide.pdf.
[4] McKinsey (2020). Climate risk and response in Asia. Retrieved from https://www.mckinsey.com/capabilities/sustainability/our-insights/climate-risk-and-response-in-asia.
[5] World Health Organization (2021). COP26 special report on climate change and health: the health argument for climate action. Retrieved from https://www.who.int/publications/i/item/9789240036727.
[6] World Health Organization (2021). COP26 special report on climate change and health: the health argument for climate action. Retrieved from https://www.who.int/publications/i/item/9789240036727.
[7] Geneva Association (2022). The Role of Insurance in Promoting Social Sustainability: Environmental Finance Bond Database, compiled by Moody’s. Retrieved from https://www.genevaassociation.org/sites/default/files/2022-11/social_sustainability_report.pdf
[8] Geneva Association (2022). The Role of Insurance in Promoting Social Sustainability: Environmental Finance Bond Database, compiled by Moody’s. Retrieved from https://www.genevaassociation.org/sites/default/files/2022-11/social_sustainability_report.pdf
Annex I: Illustrations
Part 1: Illustrations showing links between environment and health
Key environmental and human health interactions.
Source: AIA Australia (2022). The Environment and Our Health.
Retrieved from: LINK
Attributable fraction of NCDs for selected risk factors by disease group, 2016.
Source: AIA Australia (2022). The Environment and Our Health.
Retrieved from: LINK
Part II: Illustrations showing how ESG and health insurance works.
A 'heat map' of potential ESG risks in property & casualty underwriting (based on the UNEP FI PSI one)
Source: Geneva Association (2022). The Role of Insurance in Promoting Social Sustainability: Adapted from UNEP-FI PSI.
Retrieved from: LINK
Current drivers of social sustainability
Source: Geneva Association (2022). The Role of Insurance in Promoting Social Sustainability: Environmental Finance Bond Database, compiled by Moody’s.
Retrieved from: LINK