Insurance is crucial to sustainable growth – UNEP FI

London, 24 May: The insurance industry should develop microinsurance products to promote sustainable growth in developing countries, according to a joint report by insurers and the UN.

Under the UN Environment Programme Finance Initiative (UNEP FI), insurers will also create a set of 'Principles for Sustainable Insurance'. UNEP FI said these principles will help to embed environmental, social and governance issues in the insurance sector and would complement the UN Principles for Responsible Investment.

In its first report, Insuring for Sustainability, the Insurance Working Group of the UNEP FI ranked nine global sustainability issues identified as vital for insurers to address. Topping the list is climate change, followed by microinsurance, lifelong income, health, emerging man-made risks, environmental liability, natural resources, recycling and internal resource efficiency.

"The insurance industry is a strong lever for implementing sustainability due to its size, the extent of its reach into the community and the significant role it plays in the economy," the report said. Insurers disburse around $1 trillion each year in settling claims, opening the door to improving the sustainability of goods and services, it noted.

The report also identifies general reasons why the financial sector does not readily engage in sustainability and the technical barriers to developing a sustainable insurance market.

Microinsurance is a method of insuring the poor, who are traditionally excluded from financial services. The insured values are small, around $50-250, and are often to cover micro-loans. For example, insurer AIG this year launched a microinsurance programme in Latin America to provide accident and health insurance for 200,000 micro-loan recipients.

While mainly a solution to social and economic vulnerability, microinsurance can also encompass environmental risk. One recent innovation identified is the use of simple weather derivatives to provide micro crop insurance to poor farmers.

Microinsurance could also help poor communities cope with the effects of climate change. "A major concern [about] climate change is that most of the economic losses from disasters are uninsured, leaving the victims to refinance themselves or rely upon donor aid. This is especially acute in developing countries where insurance penetration is very low," the report said.