Resilience and sustainability are growing focus areas for insurers, yet more clarity is needed

There is a growing focus on embedding resilience and sustainability in insurance claims handling and remediation, from new business requests for information (RFIs) asking how loss adjusters approach waste disposal and recycling, to so-called “green clauses” in policies allowing additional budget to incorporate resilient and sustainable methods and materials.

Yet, despite progress being made, there is some way to go. Typically resilience wordings respond to the storm and/or flood peril and even then, there can be a lack of clarity and consistency. With both challenges and opportunities here, the question remains as to how the industry can better support resilient and sustainable claims handling.

Increased focus

Insurers are increasingly focused on sustainability, actively ensuring that their supply chains work to reduce carbon footprints. This includes reducing carbon emissions during claims via the use of remote tech, EV vehicles, reinstatement practices and materials, waste disposal and salvage.

Resilience and sustainability now feature prominently in performance reviews and are a crucial focus in RFIs. Many insurers have adopted Flood Re’s "build back better" philosophy and high-net-worth policies in particular are leading the way, often providing explicit cover for resilient and sustainable measures.

Increasingly, policy clauses allow risk mitigation measures, such as non-return valves or automatic water shut-off systems, to be installed in properties even beyond the areas directly affected by a loss.

The claim level is where sustainability efforts truly play out. Adjusters have a key role and can help to drive sustainable claims handling by taking a three-tier approach: firstly by reviewing the policy wording to assess any coverage provided and discuss with both the policyholder and insurer about alternatives, even when the policy does not extend coverage for sustainable options; secondly by evaluating the cost-benefit ratio of implementing sustainable solutions during the reinstatement process; and finally by ensuring that accredited suppliers are utilised.

Challenges in standardising resilience and sustainability

Despite these advancements, several challenges remain. There is a lack of consistency and clarity across the industry, with many policies not mentioning resilience and sustainability explicitly.

While there is interest in building back better, many insurers are understandably cautious about exceeding cost-neutral solutions. While both policyholders and their insurers are sometimes willing to invest in sustainable solutions that go beyond their policy cover, balancing these costs remains a delicate issue.

Within business interruption claims, for example, there are challenges in integrating sustainable practices into the claims process because current policies are focused on short-term financial recovery rather than long-term environmental resilience. Rigid definitions, economic constraints, limited indemnity periods, supply chain challenges, and repair versus replacement choices are all factors that make it difficult to integrate sustainability into the current BI claims process.

In property insurance policies, where there are stipulations for ‘building back better’, adjusters often find that policies don’t cover alternative, resilient solutions unless specifically related to storm or flood perils, even if resilience could benefit other perils as well.

Looking forward

Policy wording workshops and collaboration with underwriters can enhance the consistency of sustainable clauses, and this is something that McLarens has taken the lead on.

Insurers and policyholders need clarity, and “green reserving” is emerging as one potential solution. This approach involves outlining the required funds for sustainable and resilient materials and giving insurers options that align with sustainable practices.

Both policy holders and insurers could also benefit from a clearly defined policy section dedicated to resilience and sustainability. Rather than viewing sustainable measures as an optional expense, this could help to frame them as investments in future-proofing assets. Expanding coverage to other perils, beyond just flood, would also be a significant step forward.

The industry could also focus on making better use of data, good carbon calculators, and policy incentives to encourage businesses to adopt eco-friendly practices.

While cost constraints are an ongoing challenge, a well-defined approach to resilience and sustainability could incentivise policyholders to invest in protecting their assets in the long term. High-net-worth clients, for instance, may be more inclined to contribute beyond their policy’s coverage, further driving a culture of resilience.

In summary, the insurance industry is making strides in embedding resilience and sustainability in claims handling, but significant challenges remain. By refining policy language, enhancing collaboration, and exploring green reserving options, the industry can offer clearer and more consistent support for sustainable practices.

Gareth Bowers is head of major loss, UK and Ireland, at McLarens.