Sustainable Development in The Insurance Sector

Embracing ESG: A Catalyst for Sustainable Development in Kenya's Insurance Sector

By Patrick Nyaga

Africa’s first ever Woman Nobel Laureate Professor Wangari Maathai’s last words to Kenyans inspired by the hummingbird parable sums it all up. What we can do in our different capacities to green the world, save the environment, and improve livelihoods.

 “We should always be like a hummingbird. I may be insignificant, but I certainly don’t want to be like the animals watching the planet go down the drain. I will be a hummingbird, I will do the best I can,” she said.

As our planet faces unprecedented adverse climatic changes, ecological degradation, and dwindling natural resources, it is evident that we are facing a planetary crisis that calls for decisive interventions starting at the individual level.

Unexpected climate-related catastrophes witnessed lately from droughts, floods, heat waves and rising sea level mean there is an increased level of risk, hence a need for better and data-informed response.

Research by global consulting firm, McKinsey, indicates that the value at stake from climate risks will double by 2050. It is already happening as insured losses from natural catastrophes have increased by 250 percent in the last 30 years, says the 2022 World Property & Casualty (P&C) Insurance Report, by the Capgemini Research Institute.

Kenya, thus, faces a major sustainable development crisis for which urgent action is required. Embracing Environmental, Sustainable and Governance (ESG) principles is not only vital for building a sustainable and resilient future for the nation but also presents a strategic opportunity for underwriters to position themselves as socially responsible leaders.

A worldwide survey by PWC has it that ‘76 percent of consumers will discontinue their relationship with companies that treat the environment, employees or community in which they operate poorly.’ 36 percent of global insurers cite customers as their top priority when they are defining their ESG strategy. This survey underscores the increasing importance attached by consumers to ESG matters and the need for the sector to align accordingly.

By leveraging technology and data analytics, insurers can develop innovative solutions that address emerging risks and promote resilience in the face of environmental and social disruptions.

First and foremost, incorporating ESG factors into risk assessments will enable insurers to better understand and manage the financial implications of climate-related claims. Moreover, insurers can incentivise policyholders to adopt sustainable practices by offering tailored insurance products that reward eco-friendly behaviours.

Secondly, to promote social inclusion through ESG-driven practices, underwriters should develop solutions that cater to the needs of underserved communities. Products such as microinsurance for low-income populations play a significant role in expanding access to financial protection.

Furthermore, integrating social factors into underwriting policies can ensure fair and equitable treatment for all policyholders, fostering a more inclusive insurance ecosystem.

Thirdly, ESG-aligned corporate governance is critical for building trust and accountability within the insurance industry. Sound governance practices ensure ethical decision-making, transparent operations, and responsible risk management.

By adhering to these principles, insurance companies can build stronger relationships with their customers, regulators, and other stakeholders. Additionally, good governance practices inspire investor confidence and attract responsible investments, enabling insurers to access capital for sustainable business growth.

While integrating ESG considerations presents numerous opportunities for Kenya's insurance industry, the sector is yet to fully embrace these principles and frameworks which are still in the early stages of adoption across the market.

The Nairobi Declaration on Sustainable Insurance, launched by the United Nations Environment Programme’s Principles for Sustainable Insurance Initiative in 2021, underscores the industry’s urgency to develop ESG principles and solutions within their businesses to meet expectations with actions, especially on climate concerns.

In becoming a signatory to the Nairobi Declaration, CIC Group has joined local and international insurance firms committed to promoting the achievement of Sustainable Development Goals in the industry. Furthermore, the underwriter has also subscribed to the UN Global Compact principles, affirming its commitment to adopting ethical and responsible business practices in its day-to-day operations.

Kenya's insurance industry stands at a critical juncture where embracing ESG principles is not only a moral imperative but also an opportunity to drive transformative change. By mitigating environmental risks, promoting social inclusion, strengthening governance, and fostering innovation, ESG can serve as a catalyst for sustainable development in the country.

Insurers must recognize the interconnectedness of their actions with the well-being of society and the environment. As a way of playing their part, the insurance industry should adopt sustainable practices in their processes as a way of contributing to mitigating environmental risks and enhancing climate resilience in Kenya.

The writer is the Group Chief Executive Officer at CIC Group.