Insurers plan sustainable replacements to meet net zero

17 July 2021   By Dr Lucy Brown, Editor

Association of British Insurers (ABI) publish roadmap to address climate change in wide-ranging report.

Insurers could begin encouraging customers to switch to an electric vehicle after having their car written off or have a sustainable heating system installed instead of replacing a broken gas boiler with a new one.

Customers may also be encouraged to take repaired or recycled items as part of an insurance settlement rather than brand-new items.

The ABI Climate Change Roadmap is the insurance industry's working document to address climate change and help the UK reach net zero by 2050.

home insurance

ABI roadmap

The ABI plan has several consumer-facing elements alongside a host of behind-the-scenes suggestions on investment and underwriting.

They say the roadmap will be reviewed and refreshed every year in line with scientific evidence and to ensure it stays in line with the Government strategy to reach net zero by 2050.

Some of the key suggestions include:

  1. Encouraging sustainable decisions at key moments after insurance claims
  2. Encouraging the development of markets for repair and replace
  3. Supporting a 'just transition'

These three elements come under the fourth pillar of the plan designed to help society adapt to the changes that need to be made to reach net zero.

Changing behaviour

The ABI points out the moment a person makes an insurance claim could be a pivotal moment for encouraging sustainable consumer decisions.

They suggest incentives could be put forward by insurers to increase the uptake of sustainable solutions.

For instance, customers could be encouraged to take a new electric car instead of a like-for-like replacement on their old petrol or diesel vehicle.

Other examples they cite are the replacement of a gas boiler with a more sustainable alternative rather than a like-for-like replacement, along with the possibility of improving the energy efficiency of a home alongside undertaking any necessary repairs.

Another key element in the ABI roadmap is encouraging re-use, repair and recycling behaviour across home and motor insurance claims.

Rather than automatically offering brand-new items, insurers could encourage customers to take repaired or recycled items in their insurance settlement, reducing the amount of waste on the market.

They further add that a sustainable secondary market for electric vehicles needs to be encouraged as early adopters look to upgrade their current vehicles.

Net zero

The ABI's roadmap is a huge document with plenty of suggestions on how this important industry can contribute to the battle against climate change, covering everything from recycling and repairs through to sustainable investments and managing the supply chain.

It's important not to lose sight of customers themselves in this plan, though, and that's mentioned within the report when it talks about a 'just transition' which aims to manage the impact of the transition on the most disadvantaged in society.

Explicitly, the roadmap says the sector must ensure insurance products remain affordable and that sustainable choices are not disincentivised.

These are arguments and debates we're seeing across numerous sectors, with energy regulator Ofgem leading the charge in their 2020 decarbonisation plan.

The point ABI make about replacing gas boilers with more sustainable heating sources is something we're hearing a lot about.

Five of the UK's biggest energy companies commissioned a report to demonstrate how Government policies penalise customers who install heat source pumps to replace their traditional boilers.

This was followed by a report commissioned by Shell Energy which looked at the challenges facing the net zero target, including the need for a 40-fold increase in the number of homes installing low carbon heating.

Against this backdrop, the proposals put forward by the ABI to incentivise the installation of low carbon home heating options after insurance claims could be an innovative way to boost low carbon take-up - as long as customers don't end up too much out of pocket.

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