Green insurance: A roadmap for executive management

Stricker, Lukas; Pugnetti, Carlo; Wagner, Joël; Zeier Röschmann, Angela Article Green insurance: A roadmap for executive management Journal of Risk and Financial Management Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Stricker, Lukas; Pugnetti, Carlo; Wagner, Joël; Zeier Röschmann, Angela (2022) : Green insurance: A roadmap for executive management, Journal of Risk and Financial Management, ISSN 1911-8074, MDPI, Basel, Vol. 15, Iss. 5, pp. 1-19, https://doi.org/10.3390/jrfm15050221 This Version is available at: https://hdl.handle.net/10419/274743 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Journal of Risk and Financial Management 15: 221. https://doi.org/10.3390/jrfm 15050221 Academic Editor: Shigeyuki Hamori Received: 27 April 2022 Accepted: 16 May 2022 Published: 18 May 2022 Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Copyright: © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). Journal of Risk and Financial Management Article Green Insurance: A Roadmap for Executive Management Lukas Stricker 1, Carlo Pugnetti 1, Joël Wagner 2,3,* and Angela Zeier Röschmann 1 1Institute for Risk & Insurance, ZHAW School of Management and Law, Technoparkstrasse 2, 8401 Winterthur, Switzerland; [email protected] (L.S.); [email protected] (C.P.); [email protected] (A.Z.R.) 2Department of Actuarial Science, Faculty of Business and Economics (HEC Lausanne), University of Lausanne, Chamberonne—Extranef, 1015 Lausanne, Switzerland 3Swiss Finance Institute, University of Lausanne, 1015 Lausanne, Switzerland *Correspondence: [email protected] Abstract: Anthropogenic climate change is accelerating, and severe and widespread consequences are expected in many areas. Although the insurance sector is not closely associated with any of the sustainability dimensions, expectations may change rapidly. Against this background, we analyze the role of insurers, especially in the property and casualty areas, in addressing the environmental and climate risk challenges and developing a truly sustainable, environmentally friendly business model— green insurance. Building on the Principles of Sustainable Insurance set by the United Nations, we develop a comprehensive roadmap along the insurance value chain for executive management to design their company’s sustainability efforts, with special focus on property and casualty. The roadmap indicates actions to be taken as well as metrics to be managed in product development, marketing and sales, risk management and underwriting and operations and claims management towards green insurance. The existing products, risk appetite and operational processes must be reviewed to support sustainability goals and include the full portfolio of activities, including claims. The time to act is now, the sustainability journey is complex and the proposed business model transformation should provide benefits for early movers. Keywords: green insurance; sustainability; insurance management; value chain 1. Introduction The latest report of the Intergovernmental Panel on Climate Change (IPCC 2021) provides harsh evidence that anthropogenic, i.e., human-made, climate change is accelerating. There is little time left to limit the average temperature increase to below 2 ° C as agreed in the Paris Accord. Increases above that level are modeled to have severe and widespread consequences. Against this background, the question of the role of the insurance industry in addressing the challenge arises. Correspondence analysis (GIM Foresight 2020) shows that customers closely associate companies in the automotive, aviation or utilities sector with specific climate concerns. The same is true for the fashion industry when it comes to social issues. The financial services and banking industry, on the other hand, and with it the insurance sector, is perceived to be farther away from any of the sustainability dimensions defined by the United Nations Sustainable Development Goals (United Nations 2015) . While pressure from customers is limited for now, it may rise quickly in the future, not least because of increasing insurability and affordability issues (CRO Forum 2019). Expectations from regulators are also increasing quickly (cf. AM Best 2020;EIOPA 2019,2021;FINMA 2019). Further pressure comes, for example, from the World Wildlife Fund, who initiated the Sustainable Financial Regulations and Central Bank Activities Tracker to assess and compare measures put in place by central banks, financial regulators and supervisors to foster a sustainable financial system in key countries worldwide (WWF 2022) . Given the ubiquitous nature of the sustainability challenge and given that there is still significant discord as to J. Risk Financial Manag. 2022,15, 221. https://doi.org/10.3390/jrfm15050221 https://www.mdpi.com/journal/jrfm J. Risk Financial Manag. 2022,15, 221 2 of 19 what is really sustainable at the level of specific measures, many insurance companies are overwhelmed by this topic. By illustration, as of August 2021, more than 100 companies worldwide have committed to abide by the Principles for Sustainable Insurance, including the three largest insurers (UNEPFI 2022b). However, only 21 of the top 100 companies are signatories to these principles and the rate of participation is considerably lower for smaller companies (SWFI 2022;UNEPFI 2022b). Instead of defining sustainability, the Principles of Sustainable Insurance (PSI) indicate what sustainable insurance ought to be: “Sustainable insurance is a strategic approach whereby all the activities in the insurance value chain, including interaction with the public, are conducted in a responsible and prudent manner, involving the identification, assessment, management and monitoring of the risks and opportunities in relation to environmental, social and governance (ESG) issues” (UNEPFI and PSI 2020). Building on this definition and mindset, our paper aims at providing executive management, especially of small- and medium-sized insurance companies, a comprehensive roadmap to the topics they need to consider in designing the transition of their companies in response to the environmental and climate risk issues, i.e., the transition towards what we call green insurance. A roadmap may prove particularly useful to facilitate the start of the transition, as standards for measuring, setting targets and reporting various aspects of sustainability have emerged, indeed mushroomed, potentially causing confusion. Those standards are often defined by international (United Nations) or non-profit organizations and refer to scientific work such as by the IPCC, and other mostly natural science-based work. However, academic literature on how to apply these standards in practice in everyday insurance operations is scarce. Scordis et al. (2014) are among the first to put the PSI in relation to the (general) literature on sustainability and value maximization. More recently, Gatzert et al. (2020) provided an overview of relevant sustainability risks and opportunities in the insurance industry. They addressed both the assets and liabilities, and took a broad corporate perspective. Khovrak (2020) discussed the ability of insurance companies to use an ESG-driven approach to managing their sustainable development, and Chiaramonte et al. (2020) studied sustainability practices and the stability in the insurance industry. Finally, Nobanee et al. (2021) carried out a bibliographic analysis of sustainability in life insurance. Building on Pugnetti et al. (2022), our paper brings together the experience of insurance practitioners and provides a systematic approach to advance the sustainability of the insurance business model. By way of preview, we find that (i) the time to act is now. Insurers need to act for three reasons: (1) as good citizens given the magnitude of the impact of climate change on the economy and society, (2) given the insurance industry’s significant role in mitigating impact and fostering transition and (3) also due to their manifold exposure to climate change risks. We suggest it wise for insurers to (ii) prepare for this transition now, despite its many uncertainties and the long time horizons involved, before landing at the center of public, regulatory and investors’ attention to avoid being taken by surprise when that attention inexorably shifts. Finally, (iii) we posit that the business model transformation made necessary by (i) and (ii) also provides significant benefits for early movers to harvest the opportunities associated with a riskier world in transition. More specifically, the roadmap we provide indicates the set of actions to be taken as well as exemplary metrics to be managed in the areas of product development, marketing and sales, of risk management and underwriting and of operations and claims management. We find that executive management needs to review the existing leadership, risk analysis, monitoring and reporting. Further, insurance cover and services must include environmentally friendly features that support sustainable transitions. Finally, operational processes and in particular claims management must be challenged against the metrics of greenhouse gas emissions and set targets based on the full set of activities. A forceful sustainability program will require a clear set of metrics to understand the current positioning and to direct actions towards progress. We provide first guidance in regards to metrics that support the insurers’ transition from sustainability goals to actions—well aware of the difficulty of J. Risk Financial Manag. 2022,15, 221 3 of 19 setting targets and measuring progress given uncertain and complex interdepedencies and long time horizons. The remainder of this paper is organized as follows: In Section 2we underline the relevance of the sustainability theme and propose the methodology and structure of the layout for this study. In Section 3we review executive management actions along the insurance value chain, specifically focusing on product development, marketing and sales (Section 3.1), risk management and underwriting (Section 3.2) and operations and claims management (Section 3.3). In Section 4we discuss the findings and propose an overall roadmap for action. We conclude the paper in Section 5. 2. Relevance and Methodology Insurance assets constitute a significant wealth reserve. In Europe, they are equivalent to 13.2% of total household wealth (Credit Suisse 2017;IAIS 2019), while the assets of the largest 100 insurers are equivalent to 7.2% of household wealth worldwide (Credit Suisse 2017;SWFI 2022). Although insurers are not seen as direct polluters, the role of the financial services sector in funding activities either damaging to the environment or supportive of the transition to a sustainable economy has risen considerably in the last years. It is therefore no surprise that the question of how to manage investments in an ESG compatible way has become a top management concern. Meanwhile, a veritable industry around “green” investments has developed to address the issues. While still disputed and sometimes accused of greenwashing, the standards and offers now available provide top management in the financial services sector ample support in managing the active side of the balance sheet. The passive side, however, has been much less in the focus. Nevertheless, pressure from investors and employees on insurers to address this side of the balance sheet as well is increasing. The increased attention is well founded, as the insurance industry represents a large component of the global economy. Insurance premiums account directly for 6.13% of the world’s GDP, varying between just below 3% in Africa and almost 6.5% in Europe (Swiss Re Institute 2018). Taking into account the multiplier effect of claims payments into a multi-sector economy (Bouakez et al. 2022), the indirect impact of insurance can extend to some 10% of the world’s GDP. In summary, the insurance industry is too significant a player to wait on the sidelines and must actively embark on a sustainability journey encompassing all aspects of its business. This paper lays out a road map for executive management, specifically designed for smaller insurance companies, to help them organize the journey towards a greener future. We do this by summarizing the current status of debates along the classical value chain (Eling and Lehmann 2018;Porter 1985) of an insurance company, excluding, as explained above, investment management, which is well researched already. The objective is to provide a comprehensive overview of the topics to be addressed, even if the way to address them may not be entirely clear at this point. The idea of the value chain as described by Porter (1985) is a systemic view on an organization, with every process step defining a subsystem consisting of inputs, internal activities and outputs that form the inputs of the next subsystem in the process chain or to the outside world. The concept is well suited for our topic for two reasons: First, it ensures a generic view of all activities a company performs irrespective of the specific organizational structure of the individual company, and, second, it forces us to consider the interconnected and all-encompassing nature of the sustainability topic in a systemic manner. For similar reasons, Eling and Lehmann (2018) applied the value chain concept to the ongoing digital transformation, which is comparably all-encompassing in its nature as the sustainability transformation ahead. Furthermore, the current state of literature on green insurance does not provide comparative approaches yet. In the following (see Section 3), we consider the three main parts of the value chain, namely, (1) product development, marketing and sales, (2) risk management and underwriting, (3) operations and claims management. J. Risk Financial Manag. 2022,15, 221 4 of 19 3. A Roadmap along the Insurance Value Chain We are aware that virtually all parts of an insurance company have a role to play in the sustainability transformation, including but not limited to what Porter (1985) calls supporting activities, i.e., public relations, IT, legal and human resources. For the purpose of this paper, we focus on the following three core elements along the insurance value chain (see also Eling and Lehmann 2018): 1. Product development, marketing and sales, with a focus on product development, 2. Risk management and underwriting, 3. Operations and claims management, including aspects of procurement and servicing. In the following, we review these three areas of value creation indicating the status of the current sustainability discussions among academics and insurance practitioners. This enables us to group sustainability considerations in those fields of the profession and form a roadmap for insurance executives. Finally, we suggest possible sustainability metrics that allow to monitor the status and progress of the journey along the roadmap. 3.1. Product Development, Marketing and Sales Sustainable insurance solutions are not entirely new. A review by Mills (2009) of 244 insurers and related organizations globally found 643 real-world examples in the products and services category. More recently, Fey (2021) reviewed the Swiss insurance sector for green products and found various examples ranging from premium rebates for electric vehicles to specific insurance solutions for photovoltaic or geothermal power generations. We report a selection of such product features in Table 1. Table 1. Examples of product features published by Swiss insurers in annual reports as of 2021 (adapted from Fey 2021). Company Product Features Baloise – CO2compensation for policyholders possible – Expansion of the electric vehicle charging infrastructure Helvetia – Premium discounts for electric vehicles – CO2compensation for policyholders possible – Insurance for photovoltaic systems and geothermal probes Mobiliar – Premium discounts for electric vehicles – Focus on repairing instead of a replacing items – Insurance for photovoltaic systems – Emphasis on preventive measures Zurich – Premium discounts for electric vehicles – Insurance for photovoltaic, geothermal and similar systems – Parametric insurance solutions – Emphasis on insurance solutions for innovative companies and technologies dealing with the reduction and storage of CO2 Nevertheless, there is no clear-cut definition for green insurance products available yet. Instead, several emerging non-binding regulations and standards (see, for example, SASB 2018 ;SIA 2020;TCFD 2021;UNEPFI and PSI 2020, among many others) can be observed. These are only slowly evolving into a more unified industry framework, and as such can be confusing, especially for smaller insurance companies. What is more, the definition of green products will be largely shaped by external perception of the public, investors, regulators and consumers, requiring an outside-in view in the product development process as well. J. Risk Financial Manag. 2022,15, 221 5 of 19 Product development, marketing and sales roadmap. Insurance is a promise and as such an intangible product. Except for the paper (if any) the contract is written on, there are no direct emissions attached to its production. The “greenness” of an insurance product is therefore linked to the object or activity that is insured. Thus, the fulfillment of the promise, the claims handling, becomes much more material. We separately discuss its impact on sustainability in Section 3.3. Taking into account the life cycle of an insured object or activity, and the choices consumers make along its way, the roadmap for green insurance products consists of four major aspects (see also Figure 1) and one overarching dimension: 1. Insurance cover for green objects. Cover of green insurance objects with specific tariffs to promote eco-friendly objects. 2. Inclusion of green policy features. Adding green insurance features to conventional objects or activities, as part of the core product or related service, or as independent service. Products or services can cater for specific sustainability themes or related risks. 3. Sustainable transition claims support. Support of the sustainability transition after a claim with ecological repair, replacement, or upgrades (see Section 3.3). 4. Promotion of environmentally friendly behavior. Set up of incentives, ecosystems and communication to promote environmentally friendly behavior, characteristics and transition outside a claim. 5. Dialogue with customers. Lead regular dialogue with customers on critical issues, provide incentives and risk advice to support their risk mitigation and efforts of transition (see Section 3.2). Moments for green choices Know the environmental impact Avoid / reduce consumption Overcome barriers Purchase and product cycle Become aware Consider Intend Buy Renew, replace Dispose, recycle, sell Maintain, repair Use Choose more eco-friendly option Reduce consumption during use Compensate what cannot be reduced Preserve eco-efficiency Reuse Promotion of environmentally friendly behavior Insurance cover for green objects Inclusion of green policy features Sustainable transition claims support Figure 1. Types of green insurance propositions along the purchasing and product life cycles (adapted from Pugnetti et al. 2022). Indeed, insurance companies can act on the buying and usage behaviors of products tailored for clean technology and emission-reducing activities (UNEPFI 2007). Incentives come through, e.g., specific cover, tariffs and features (see the moments for green choices in Figure 1), the choice of more eco-friendly options or the reduction of consumption during use. More specifically, when covering green objects or activities, insurers can adjust covers and services to address the specific needs, such as for the batteries and charging cables in the electric vehicles or for the charging station in the garage. Or they can adjust tariffs in favor J. Risk Financial Manag. 2022,15, 221 6 of 19 of a green product when compared to a conventional one. Thereby insurance premiums recognize eco-friendly objects or behavior. The latter triggers underwriting consideration (see Section 3.2) where the potential effect of customers buying environmentally friendly objects having an advantageous risk profile may justify lower tariffs (see, e.g., Baecke and Bocca 2017;Swiss Re 2017, p. 18; Eling and Kraft 2020). Overall, a revision of the premium calculation can lead to policies where features promote sustainable or green behavior (Zona et al. 2014), and incentivize health, safety or environmentally responsible actions or behavior (SASB 2018). The progress can be measured through written premiums related to energy efficiency and low carbon technology, for example. Green policy features are building on core insurance products. Some companies currently offer CO 2 compensation for policyholders in cases where certain environmental impacts cannot be reduced (cf. Table 1). A classic example is a travel insurance offering a CO 2 compensation extension. It also includes digitally supported incentives to optimize usage (such as pay-as-you-drive offers) as well as prevention services through telematics (see, e.g., Swiss Re 2017, p. 18) or smart home solutions (Deloitte 2017;Sevillano 2018) to avoid resource-intensive repairs or replacements. Finally, following the product cycle, client’s repair, recycling and renewal processes can be supported through eco-efficient and reuse-oriented incentives. Insurers can also influence customer behavior early in the life cycle of an insured product or activity. They can acknowledge if the underlying risk is already eco-friendly or transitioning towards being (more) eco-friendly, and propose to cover the design, production and use of sustainable products, or the liability associated with their production and use (Zona et al. 2014). Communication on the environmental knowledge and consumption best practice can promote environmental behavior. Apart from classical promotion campaigns, this often involves an insurer’s participation in a broader business ecosystem, e.g., for shared mobility, green buildings or circular economy offerings. Design features for mobility and home insurance. The focus on green mobility and home insurance products is justified by their interlinkage with many environmental aspects. Life and health products, by contrast, are more linked to social sustainability aspects. In fact, the transportation sector is the largest emitter of greenhouse gases (IEA 2019) while buildings and their construction account for 35% of global energy and 38% of total global energy-related emissions. Residential buildings (excluding construction) account for 22% of energy and 11% of emissions, respectively (UNEP 2020, p. 4). According to the IEA (2019) neither the residential housing market nor associated housing appliances are transitioning fast enough towards the sustainable development scenario. Electric vehicles, on the other hand, are one of the few technologies on track under that scenario. However, efficiency gains are largely canceled out by consumer preferences for large cars and lower vehicle occupancy rates (IEA 2019). Insurance product solutions catering to a faster transition are therefore highly relevant. As Pugnetti et al. (2022) note, “green products are but one part of a comprehensive approach towards sustainability along the insurance value chain. An isolated offer that could be interpreted as a symbolic action or selective disclosure might be regarded as greenwashing by consumers. A number of mitigation actions—such as inventory reporting, impact quantification, third-party verification and integration of SDG (Sustainable Development Goals) reporting into internal decision marking—contribute to an exhaustive sustainability approach including product development, communication and reporting (Spors 2021;Verles 2018)”. Table 2provides an overview of design features for motor and home insurance. On the bottom line, a key question is whether the product or service contributes to a measurable sustainability metric. In fact, as we discuss in Section 3.3, insurance companies must measure the impact of products and services on greenhouse gas emissions, physical risks and transition risks (TCFD 2021), as well as their impact on companies’ sustainability goals (e.g., amount of people benefited, contribution to the sustainable development goals target). J. Risk Financial Manag. 2022,15, 221 7 of 19 Table 2. Examples of sustainable mobility and home insurance propositions (adapted from Allianz and Euler Hermes 2020;AutoSense 2022;Capgemini 2021;Laka 2022;Mills 2009;Sharely 2022; Thingsy 2022;UNEPFI 2007;VCS 2020;Zurich 2022, see also Pugnetti et al. 2022). Dimension Mobility Insurance Home Insurance Insurance cover for green objects – “Green” behavior discounts for low- and no-emission vehicles – Cover for electric, hydrogen and alternative fuels vehicles – Specific cover for e-scooters – Discount for car insurance policyholders with public transport pass – Cover and discounts for certified buildings (e.g., LEED, Energy Star) – Discounts linked to risk reduction and property loss mitigation measures (e.g., installations against NatCat impact) – Cover for solar installations and photovoltaic warranty – Cover for eco, self-built homes and alternative builds Inclusion of green policy features – “Pay as/how you drive” pricing – Green consumption services – Bicycle cover with club rewards – Compensation of mobility emissions – Technical, maintenance and warranty support for “green” installations – Renewable energy reimbursement in case of power outage – Consumption-based services; compensation of emissions Sustainable transition claims support – Virtual repair or optimized physical repair network – Repairment instead of replacement (e.g., windshield repair) – Transition incentives towards “greener” mobility choice (e.g., replacement upgrade for hybrid or electric vehicles) – Ecological repair and replacement (e.g., claims handling with used parts to avoid resource consumption) – Eco-friendly replacement material – “Green” building upgrade after loss or for renovations (e.g., allow for rebuilding more sustainable after a loss) Promotion of environmentally friendly behavior – Services from partner networks with charging at fixed prices – Mobility ecosystems and services (e.g., joint mobility platform services) – Cover for sharing mobility (e.g., B2B2C part nerships with additional individual covers) – “Green” building advice – Local NatCat risk information – Smart home solutions with climate impact – Sharing society and circular economy services – Behavioral discounts 3.2. Risk Management and Underwriting Managing risks is the “raison d’être” for insurance companies. In fact, the ability to select, price, manage and finance risk is the core of the insurance business. Accounting for sustainability risks before risk financing in the underwriting as well as in the risk management process is of significant importance to insurers (Shea and Hutchin 2018). EIOPA (2021, p. 5) states that “the increasing manifestation of climate change risks in the coming years and decades may provide undertakings with strategic opportunities, but also challenge current business models, jeopardizing the long-term risk profile and solvency”. Generally speaking ESG risks are defined as “events or conditions related to environmental, social and governance aspects that if they occur have potential or actual negative impacts on the financial position, performance, reputation of the entity” (BaFin 2019). ESG-related or sustainability risks are not necessarily new. However, both prevalence and attention have accelerated rapidly in the recent past (COSO and WBCSD 2018). Insurers are challenged to consider the potential impact and need to increase their focus on oversight, governance and management of these risks across the organization. Starting with a definition of ESG risks, the focus in this section is on the role and roadmap of the risk management and underwriting function. Environmental, social and governance risks. While there is general agreement in the literature and practice concerning the three ESG factors, only a few authors or institutions J. Risk Financial Manag. 2022,15, 221 8 of 19 provide a definition of ESG risks. In fact, most international frameworks and standards have refrained from establishing a definition. In consequence, insurers are challenged to outline and communicate their understanding of ESG risks depending on the own business model. However, we can retain that ESG risks are commonly understood as financial and non-financial impact driven by three aspects (cf. COSO and WBCSD 2018;EBA 2020; UNEPFI and PSI 2020): First, environmental (E) issues relate to the quality and functioning of the natural environment and natural systems. Second, social (S) issues relate to the rights, well-being and interests of people and communities. Third, governance (G) issues relate to the governance of companies and other entities. For illustration, we provide a characterization of ESG risks in Table 3. Table 3. Characterization of ESG risks (adapted from BaFin 2019;COSO and WBCSD 2018;EBA 2020; EIOPA 2019;Pfeifer and Langen 2021). Issues Description Environmental – Climate mitigation and adjustment to climate change – Protection of biodiversity – Sustainable use and protection of water and maritime resources, sustainable land use – Transition to a circular economy, avoidance of waste and recycling – Avoidance and reduction of environmental pollution, protection of healthy ecosystems Social – Compliance with recognized labor standards (no child labor, forced labor or discrimination) – Compliance with employment safety and health protection – Appropriate remuneration, fair working conditions, diversity, training/development opportunities – Trade union rights and freedom of assembly – Guarantee of adequate product safety, including health protection – Application of the same requirements to entities in the supply chain – Inclusive projects and consideration of the interests of communities and social minorities Governance – Tax honesty and anti-corruption measures – Sustainability management by the board, board remuneration based on sustainability criteria – Facilitation of whistle blowing, employee rights guarantees – Data protection guarantees and information disclosure ESG risks in our view are not a subcategory of emerging risks because some already have an impact, such as physical damage caused by environmental risks. EIOPA (2019) defines sustainability risks as “risks that could affect the insurance and reinsurance undertakings’ risk profile, on the investments and liabilities side, due to ESG factors”. BaFin (2019) expands on the type of impact and defines ESG risks as “events or conditions related to environmental, social and governance aspects that if they occur have potential or actual negative impacts on the financial position, performance, reputation of the entity”. Climate change risks. The focus of the insurance industry and of this contribution is on climate risks. Typically, climate change risks are divided into two groups (CRO Forum 2019;Golnaraghi 2021) . The first group encompasses physical risks related to actual climate change and the impact on the value of assets and liabilities. They can be driven by events or longer-term shifts in climate patterns. Second, there are transition risks seen as uncertain consequences of the transition to a sustainable, low-carbon economy such as public policies, regulations, technological advancement, market conditions and other aspects of societal transition that affect the level of climate change risk and the future risk landscape. Transition risks also include climate-related litigation and legal risk (Golnaraghi et al. 2021). These risks impact insurers to a diverse and potentially severe extent as insurers underwrite and accept diverse risks of their customers. Adapting the risk appetite and underwriting process and guidelines is therefore of utmost importance for an insurance company. While most importance is currently put on understanding the impact of extreme weather events (Golnaraghi 2021;Golnaraghi et al. 2021;Swiss Re Institute 2021), mitigating J. Risk Financial Manag. 2022,15, 221 15 of 19 By reducing and reporting their own footprint, insurers gain the expertise and position to consult their clients and suppliers, not least in how to handle claims in an ecofriendly way. Insurance companies of all sizes embarking on their sustainability journey need to consider the complex (in the systemic sense of “non-linear” and thus unpredictable) nature of the journey when charting the course for its implementation. Specifically, they need to be aware that: • The journey needs to start without clear line of sight of the endpoint. The implied necessity for frequent and potentially substantial corrections along the way cannot, however, be an excuse for delaying the start to a time of greater clarity. The systemic characteristics of delayed reaction time, positive feedback loops and potential tipping points due to non-linearity inherent to climate change do not allow for that luxury. • The journey also needs to start with the acceptance by its initiators that they will most likely not see it through to the end, simply because the journey will take much longer to complete than their individual tenure in the company will. This poses a challenge in that individual incentives and typical managerial cycles are not per se aligned with overall objectives. • It adds many stakeholders and governance aspects to consider in the internal decisionmaking process, increasing the risk of over-steering or paralysis of the organization itself, as well as a high potential for frustration or disillusionment, resignation or even cynicism on the way. • It requires collaboration across silos and beyond the borders of one’s own organization, exposing what used to be considered “internal matters” to the public and hence demanding a clear strategy to manage the public perception as well as regularly confirming employees’ and investors’ buy-in. • It requires both a clear top-down leadership and local execution. It also requires the ability to quickly react to external influences and events and to new facts and targets. As such, it brings to the forefront agility, diversity and resilience, much discussed in the current digital transformation literature. Extending the purpose of an organization towards the “triple bottom line”—profit, people and the planet—inevitably creates potential conflicts of interest at all levels (Elkington 1999) . Rather than ignoring them in an enthusiastic rush towards sustainability, it will be key to recognize them, build them into the design of governance and give guidance to people involved in daily management on how to deal with situations where previously profit-driven decisions are now challenged by sustainability considerations. One way to systematically consider the people and planet dimensions in every-day, profit-oriented decisions taken by insurance professionals is to learn from the risk management practices which aim to optimize risk–return trade-offs. In such a framework, a “sustainability price tag” is attached to every decision. This may change the picture even from a pure profit standpoint. The challenge is to develop a comprehensive model which includes external risk factors, and yet can be applied sufficiently easily. The roadmap is to be interpreted against some limitations. We acknowledge that the recommendations can only guide insurers in steps to be taken across the value chain and cannot be used as a ready-to-implement checklist. For that, more in-depth analysis will be required in each segment of the value chain. Moreover, the examples provided will quickly be complemented by new approaches. Hence, insurers are challenged to develop their own answers to address sustainability issues, which might be a difficult task for smaller insurers lacking the resources. Targeted focus groups may be useful for defining respective sets of metrics with the potential to evolve into standards that can be used across individual insurance companies, fostering transparency and best practice exchange. We leave these questions open for future research on sustainability transformation in insurance. 5. Conclusions This paper initially developed from an intensive exchange between academia and insurance practitioners in preparing an executive education program entitled “Leading the J. Risk Financial Manag. 2022,15, 221 16 of 19 Green Insurance Revolution” in 2021. It made sense to structure the program along the insurance value chain. Doing so forced us to be both specific in our own field of expertise while also maintaining a comprehensive and systemic view, considering inputs received from upstream, own activities and outputs passed on downstream to the next element in the value chain. Given the rather alarming situation and the non-linear characteristics of the underlying system, the climate, we conclude that waiting to start the green transformation journey until all of its element become clear is a luxury we cannot afford. The time for the insurance industry to act as good citizens and rational decision-makers is now. Irrespective of the currently neutral public perception, insurers need to prepare for a journey that will be both complex in nature as well as long-lasting in its duration. We suggest that by adjusting one’s business model to sustainability requirements, early movers can expect to capitalize on substantial market opportunities. To initiate the journey, we propose a comprehensive roadmap, especially for smaller insurance companies, aimed at giving direction and setting priorities while not claiming to provide all answers to its implementation challenges. The roadmap summarizes the main findings along an insurance company’s value chain and highlights the key steps to be covered when starting the transition towards green insurance. Given the share of claims payments and the related amount of indirect GHG in the insurance business, operations and claims management are important levers for the transition. We also note that in all areas it is key to integrate sustainability into the company’s leadership culture. Finally, to measure the progress along the journey it is critical to define appropriate quantitative indicators. How to manage a transformation that in its nature is all-encompassing, complex and often in contrast to established, profit-oriented practices without running out of steam on the way is a challenge definitely worthy of further in-depth and interdisciplinary research. The challenge posed by this transformation and its societal impact also provides a rare opportunity for insurance companies to actively cooperate and exchange operational best practices for the overall benefit of society, further fulfilling the role of insurance as a public good. For insurance as an industry to succeed in this role, active participation and support by insurance and actuarial associations as well as regulators will be key, not least in supporting the process of consolidating sustainability definitions, reporting standards and metrics so that an effective exchange across the industry is fostered, also, especially, to the benefit of smaller insurance companies. Author Contributions: All authors have contributed to the conceptualization, investigation and writing. All authors have read and agreed to the published version of the manuscript. Funding: This research received no external funding. The APC was funded by the University of Lausanne . Institutional Review Board Statement: Not applicable. Informed Consent Statement: Not applicable. Data Availability Statement: Not applicable. Acknowledgments: All authors are thankful for the fruitful exchanges with the speakers of the ZHAW Leading the green insurance revolution 2021 executive education program. In particular, insightful contributions of M. Hürster, T. Gebert and H. Winistörfer from the working paper by Pugnetti et al. (2022) are adopted in Sections 3.1 and 3.3 and are gratefully acknowledged. Conflicts of Interest: The authors declare no conflict of interest. Abbreviations The following abbreviations are used in this manuscript: ESG Environmental, Social and Governance GDP Gross Domestic Product GHG Greenhouse Gases ISO International Organization for Standardization J. Risk Financial Manag. 2022,15, 221 17 of 19 ORSA Own Risk and Solvency Assessment PSI Principles of Sustainable Insurance SBTi Science Based Target initiative SDG Sustainable Development Goals References Allianz. 2021. Allianz Group Sustainability Report 2020: Collaborating for a Sustainable Future. Technical Report. Munich: Allianz SE. 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