2025 Global Insurance Outlook | Deloitte Insights

How can insurers elevate their social purpose in a financially sustainable way?

On face value, it may seem that insurers may be forced to choose between doing good or facing good. But that doesn’t necessarily have to be the case.

Over the past few years, the increase in extreme weather events, combined with high inflation that increases the cost of repairing vehicles, homes and commercial properties,76 has pushed claims losses to unprofitable levels in related lines of business.77 To return to profitability, many insurance providers increased premiums in affected lines; some have even withdrawn coverage altogether.78 Faced with fewer options and rising costs of coverage, more and more customers are now at risk of being underinsured or uninsured.79

While this scenario may seem dire, insurers who innovate and collaborate can use it as an opportunity to promote resilience and sustainability and strike a better balance between profitability and equity. Emerging technologies and alternative data sources are now available to help stem the increasing losses, which can benefit many stakeholders. Insurers must ensure that these technologies and data sources are used properly and with transparency to build trust and be recognized as stewards of purpose.

However, a perceived lack of transparency around the collection and use of some of the data currently included in underwriting decision-making is of concern to both consumers and regulators. For example, while consumer uptake of telematics devices that monitor driving behavior has been overwhelming in some regions since their inception,80 it is now possible for insurers to pull this data from less obvious sources, such as applications that drivers already have on their have phones. 81 They can then use this data to underwrite policies, often without full transparency for the manager.82

While these data points can generate more accurate underwriting, to help reduce mistrust among consumers and regulators, insurers must be transparent and disclose the information they use to rate drivers. Insurers may also consider encouraging mitigation strategies, such as issuing a credit score (similar to a credit score) to policyholders. These scores can be increased when driving behavior improves and is then reflected in prices.

Furthermore, as technology evolves, insurance companies must work to rid their underwriting models of all inherent bias. This can be particularly important where those preconceptions disadvantage vulnerable communities already plagued with affordability and access challenges due to their location. Regulators are already looking into this. For example, Colorado is currently developing a regulatory framework for insurers to help prevent bias and discrimination in AI models.83

Insurers also recognize the importance of conserving natural capital to lower claims costs. They may need to guide customers to move away from a linear economy (take-make-waste) to a circular economy approach (reuse-transform-recycle). Doing so can help promote a continuous product life cycle,84 ensuring that the parts used to repair damaged assets remain in circulation for a longer time. For example, some European insurers allow car dealers to reuse parts for repairs, making the process environmentally friendly as well as economical.85

Insurers can further incentivize supply chain partners to use renewable raw materials and recycle end products, as well as transform their own insurance products into services such as usage-based car insurance, which adjusts prices based on the actual driving behavior of the policyholder. They may also consider offering premium discounts to customers in the construction and property sectors who apply green chemistry, an approach aimed at preventing or reducing pollution and improving overall yield efficiency.86 These discounts can be applied over the life cycle. of construction products, including their design, manufacture, use and ultimate disposal, as this can reduce risk exposure for insurers.

For risk elements over which insurers have less influence, such as climate change, insurers can influence, collaborate and incentivize mitigation strategies to ensure more profitable and equitable coverage. One program in Alabama offers homeowners discounts on their insurance policies when they follow specific standards for construction or remodeling.87 In Mississippi, a bill pending in the state House would create a trust fund that could provide grants to homeowners to fortify their homes against severe weather. . or building safe rooms for tornadoes.88

In a recent Deloitte FSI Predictions article, analysis revealed that if insurers, in partnership with government entities and policyholders, invested US$3.35 billion in residential home resilience measures, the two-thirds of US homes not currently built to withstand hazard adopting and following non-resilient building codes can become resilient enough to reduce many weather-related claims losses. This could save insurers an estimated US$37 billion by 2030.89

For life insurers, climate change affects health/morbidity and mortality in a more subtle way. Factors such as poor air quality due to increased pollution or wildfire smoke can exacerbate respiratory and cardiovascular conditions, leading to higher morbidity and premature mortality.90 To help reduce the overall risk profile, insurers, in partnership with other stakeholders, can make collaborative investments in communities living in these adverse living conditions and promoting health awareness and the benefits of early disease prevention. For example, several insurance companies in India that offer coverage for diseases caused by pollution, such as asthma and chronic obstructive pulmonary disease, also include the cost of air purifiers and specialized respiratory medications.91

Regulators can introduce policies that encourage insurers to underwrite certain emerging risks such as renewable energy technology. Government support and incentives may lower the capital charge on assets or liabilities associated with renewable energy projects, benefiting society and possibly lowering insurers’ risk profile.92

Many of the risk mitigation and incentive strategies employed are still in their infancy. Insurers who are already experimenting have the ability to make adjustments to the way data is collected, processed and used. As regulatory bodies, insurers, suppliers, data providers and policyholders are aligned, insurers who can transform traditional mindsets and processes in this challenging environment can take advantage of unprecedented opportunities to more effectively balance profitability with purpose.

The American National Association of Insurance Commissioners announced its strategic priorities early this year and launched a state-level data collection effort to better understand localized protection gaps in property insurance markets. These insights can provide guidance to state insurance regulators to address climate risk resilience and increase consumer access at the national level.93

In the insurance industry, where 75% to 90% of emissions are Scope 3 (indirect greenhouse gas emissions that occur outside an organization’s direct control), guidance on measurement is also critical.94 The Partnership for Carbon Accounting Financials has released guidance on measuring insurance-related emissions for commercial and personal car lines, but this can require collecting large amounts of data that are often not readily available.95 Calculating financed emissions also presents similar challenges, particularly for life insurance companies, which tend to have a large long-term investment profile.

As sustainability programs evolve, they shift from quantity to quality. Insurance companies are increasingly focusing their resources on reporting what is most important to their organization rather than striving to cover everything.96 Additionally, the industry may see a shift from obfuscated compliance reporting to embedding sustainability in business strategy decisions. The introduction of new metrics, such as implied temperature rise97 and portfolio warming potential98 — designed to evaluate and manage climate-related impacts of investment portfolios — involves complex, multidimensional data analysis. Therefore, they are expected to require long-tail investment portfolios to develop new modeling capabilities.99