The first part of this blog series introduced Accenture’s strategic resilience framework. In this blog, I will expand this introduction to take you through our framework step by step with lens sustainability and ESG (environment, social and governance).
Sustainability and ESG trends are huge driving forces in insurance – they are also among the most complex, unknown and disruptive. Addressing this issue can feel overwhelming because of how uncertain the future is: How will climate change accelerate the frequency and severity of catastrophic (CAT) events? How will climate change, together with the demand for more social justice, affect the economy and, in the long run, consumers̵7; finances and preferences? Will stakeholder capitalism profoundly change the current economic system and political landscape?
Current trends that affect sustainability in insurance
Some trends mean opportunities for insurance companies, while others mean challenges – both are important to prepare for. Below I have described five sustainability and ESG-related trends that are currently affecting the insurance industry (and the world). This is a small snapshot at a high level of the potential impact of these trends.
Use the unknown to go from trends to scenarios
There is a real risk of ignoring these sustainability trends in insurance – and a real opportunity to react to them. When we looked at the opportunities in the North American P&C market, we found that ESG-related trends are expected to drive an opportunity of $ 206 billion over the next five years. If these trends accelerate, that opportunity could increase to $ 385 billion.
* The value at stake includes both new premium opportunities entering the market and older premium transition to new product offerings
If it is not an option not to respond to these sustainability and ESG trends, what should a company do when the future of these trends remains unknown? The answer is scenario planning through a strategic framework for resilience.
Because these trends are based on the “social”, “environmental” and “governing” parts of the PESTEL framework, we can create a graph to understand what happens if these categories accelerate or decelerate. (Note: Governance combines politically and legally and is integrated into the social and environmental-focused scenarios).
This is truly the heart of strategic resilience. By nature, trends are a high-level vantage point because the details of how they unfold can change at any time. Strategic resilience is designed to withstand this uncertainty. By looking at what will happen if these trends accelerate, companies can make long-term decisions to build resilience from the beginning of their strategy planning.
Transform scenarios into an actionable roadmap using Accenture’s strategic resilience model
The point of scenarios is to arm your business with knowledge. When you imagine a world where a trend is moving faster or slower, you give yourself a range of potential scenarios to work with when deciding on a strategic roadmap. So how do you decide which scenario (s) to follow?
The future world is just a piece of the puzzle. You still have the current reality of the trend to contend with, and you also have the reality of your current business situation that will influence your decision. Basically, you need to see how the different scenarios will affect your specific business and where the biggest opportunities are. That is why we have built a strategic resilience model.
Using our strategic resilience model, we can determine the baseline – the economic effect of each trend on its current trajectory – and then the economic effect if a trend accelerates or decelerates in ESG-driven scenarios. For example, based on the chart below, our model predicts that there will be a new business opportunity of $ 117 billion over the next 5 years driven by environmental and social trends. However, the combinatorial effect of high acceleration of these trends together can yield as much as $ 343 billion. Insurance companies must have their plans in place to take advantage of these opportunities.
With this information, combined with industry expertise, you can make well-informed decisions about your company’s future. Systematically looking into the future in this way can help you stay one step ahead of changing winds, allowing you to take advantage of opportunities that your competitors may not recognize.
We may not be able to predict the future, but we can predict the range of future possibilities. This is just one example of looking at a category – sustainability / ESG – and using our PESTEL framework and strategic resilience model to build a roadmap that is both sustainable and flexible. In the next blog in this series, we will analyze our strategic framework for resilience from another angle – an industry angle.
You can contact Nina Jais or Ravi Malhotra for help in developing your ESG insurance strategy and use our strategic resilience model to build a long-term roadmap that will keep you competitive and agile.
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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.