At COP26 in November, Britain Thinks’ Lucy Farrow chaired a panel convened by the ABI as part of the Scottish Government’s COP26 programme to explore how the insurance & long-term savings sector help customers prepare for climate risks.
As the industry now looks ahead to delivering on the commitments made at COP26 and to the Uk Government’s forthcoming updated Green Finance strategy, Lucy and her colleague, Carol McNaughton Nicholls, reflect on what this means for our sector’s customers:
With every sector seemingly putting out a different message about their contribution to mitigating climate change, the insurance and savings industry is one of the unsung heroes – as one popular campaign points out investing sustainably can have 22 times the impact of other major lifestyle changes. Despite this, personal investments rarely make the newspaper articles and TV segments on greener lifestyles. So what does the industry need to know to capitalise on this opportunity?
It’s a good news, bad news situation when it comes to consumer attitudes and behaviour. The most up to date polling shows climate change and pollution is the biggest concern for UK citizens, jumping ahead of the NHS, covid and the economy for only the third time since polling began in 1998[1]. And that concern is translating into intentions to act: 57% of people in our nationally representative poll said they want to buy goods or services that are more sustainable[2]. At Britain Thinks we’ve been running a research panel, the Net Zero Diaries, through 2021/22, and our Diarists have very clear expectations that businesses (and government) need to be stepping up and delivering on the promises of policy[3].
But any good behavioural scientist will tell you that intention is only half the battle when it comes to behaviour. From heat pumps to electric vehicles to plant based diets behaviour lags behind intent. And in some areas we are seeing a polarising effect of proposed changes: we found in another recent survey that 19% of people said they would only get rid of their gas boiler if forced by government, and another 11% said they would never replace it.
Many of the barriers to changing individual behaviour are well known from other contexts like health, or safety campaigns. We know that individuals rely heavily on familiarity, habit and routine when making decisions, so any change has to have a strong pull factor and low barriers to access. In finance we find this playing out in strong customer loyalty to, and trust in, known financial actors like the high street banks. Risk aversion is another key element of financial decision making, especially for the majority of consumers who feel they lack the knowledge to make robust financial decisions and so tend not to switch.
However, the insurance and long terms savings industry have a unique set of opportunities to overcome these barriers when it comes to greener options for consumers, such as:
- Ensuring access to products that meet the growing enthusiasm for sustainable options – This enthusiasm for sustainable options is only likely to grow, because from the customer perspective having a more sustainable investment portfolio doesn’t actually require much hassle or personal behaviour change. In a nationally representative survey with over 2,000 consumers in October 2021, we found that 30% of the population would prefer to be invested in a sustainable pension fund, even if it doesn’t perform as well as a normal fund. Consumers also often tell us they don’t really understand their pension, and they realise there are few guarantees in terms of how it will perform anyway. Therefore, whether they choose a sustainable fund or normal fund the end result is the same for them – they still have a pension, and they don’t really know how it will perform. They haven’t had to tangibly change their lifestyle by making this choice, and they gain the ‘halo’ effect of having made a more sustainable choice. For many other sustainable options such as getting a new boiler or an EV, it isn’t so easy. From this hypothesis it is likely that demand for sustainable options will only grow – as well their being increasing evidence, as found in our recent poll, that consumer demand is high regardless of likely return on their investment.
- Leveraging the moments of change insurers are uniquely tapped into – Disruption to habits and routine can represent a kind of golden hour for behaviour change, inertia is no longer in play, change is inevitable and new possibilities no longer seem unthinkable. Insurance providers operate at just these inflection points, giving them an ideal opportunity to support consumers to make sustainable choices about how they heat their homes and in the way they travel. Just providing information at key points could help tip consumers into more sustainable behaviours, coupling this with other nudges like discounts could amplify the effect further.
- Normalising and mainstreaming sustainability – Rather than labelling a fund as being specifically sustainable, we have found in our research that consumers increasingly expect even normal funds to be invested in sustainable options, with 47% of the population agreeing that they would expect their pension provider to avoid investing in industries that contribute to climate change in all their funds, not just those labelled sustainable[1]. The default therefore could be sustainable options, with customers having to ‘opt out’, and choose ‘unsustainable options’ as opposed to having to select sustainability. The power of framing and defaults is well recognised in the industry – auto enrolment in pensions has been widely hailed as a success, leading to a ten-fold increase in membership to defined contribution pensions and reversing a decline in workplace pension savings. Whilst not a total solution – there are still concerns that people aren’t saving enough for their retirement – it has transformed the pensions landscape.
How similarly transformative could it be to mainstream sustainable options as the default when it comes to pension funds and insurance claims?
COP26 shone a light on how involved the finance industry is when it comes to tackling the pressing issue of climate change. There are specific opportunities for the insurance and long terms savings industry which if leveraged would also be a way to align with consumer sentiment – that they want to be more sustainable when it is easy (the norm) for them to do so and expect brands and businesses to lead the way in this. By COP27 how far will the industry have come in being able to support this?