In an era defined by climate uncertainty and growing environmental crises, the insurance industry is undergoing a fundamental transformation. No longer is underwriting solely about assessing traditional risks like age, income, or business revenue.
Increasingly, environmental risks such as exposure to climate change, pollution, deforestation and water scarcity are shaping the future of how insurers price, design and manage policies. This evolving approach, known as green underwriting, marks a shift toward more responsible, forward-looking and sustainability aligned insurance models that integrate environmental, social and governance (ESG) considerations.
Green underwriting refers to the process by which insurers incorporate environmental and sustainability metrics into the underwriting process. This includes evaluating how environmental risks may affect the insurability of individuals, businesses, or properties, and how such risks translate into pricing decisions, exclusions, or incentives.
While ESG as a framework has gained traction in investment and corporate governance circles, the insurance sector is now catching up, driven by the dual imperatives of financial risk management and societal responsibility.
One of the main drivers of green underwriting is the increasing severity and frequency of climate related events. According to the UN Office for Disaster Risk Reduction, economic losses from climate disasters have surged over the past two decades, disproportionately impacting developing countries.
In Zimbabwe and across Southern Africa, floods, cyclones, droughts and wildfires are becoming more common, devastating infrastructure, agriculture and livelihoods. These hazards are not just humanitarian or environmental issues. They represent escalating underwriting risks for insurers. In response, insurers are beginning to re-evaluate their risk models and price policies accordingly.
For example, a property insurer may consider whether a house is built in a flood prone area or whether the structure adheres to sustainable building codes that reduce environmental impact and enhance resilience. A health insurer may take note of pollution exposure or unsafe water quality, which are linked to respiratory and gastrointestinal illnesses.
A life insurer may even assess whether a client’s occupation is connected to high emission industries that pose long term health and reputational risks. These considerations allow insurers to not only manage their risk exposure but also incentivise environmentally sound behaviours among policyholders.
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Importantly, green underwriting is not just about adding more variables into pricing equations. It is about redefining the insurer’s role in the sustainability transition. By integrating ESG factors, insurers can actively promote environmental stewardship.
Some insurers now offer premium discounts for energy efficient buildings, electric vehicles, or companies that demonstrate low carbon footprints and strong environmental compliance. Others are excluding coal, oil and gas projects from their coverage portfolios, aligning themselves with broader global climate goals such as those set out in the Paris Agreement.
A growing number of insurers are also embedding green criteria into their commercial and industrial insurance products. For example, agricultural insurance policies may now include clauses that reward climate-smart farming practices like crop rotation, agroecology and reduced pesticide use.
Manufacturing firms that invest in clean technologies may receive lower premiums due to reduced environmental liabilities. Such approaches not only protect the insurer from loss, but also encourage a shift in industry behaviour toward greener operations. In essence, insurance becomes both a risk management tool and a lever for sustainability.
The integration of environmental risk into underwriting is, however, not without challenges, especially in markets like Zimbabwe. Data availability remains a significant obstacle. Reliable environmental, climate, and emissions data is often lacking or fragmented, making it difficult for insurers to build robust green underwriting models.
Many insurers still rely heavily on outdated risk models that do not account for dynamic environmental trends. In rural or informal sectors, the challenge is even greater, as there is limited documentation of asset values, environmental exposures, or compliance with ESG related standards.
There is also a lack of standardisation in how ESG is defined and measured across the insurance industry. Without common frameworks, each insurer may interpret “green risk” differently, leading to inconsistencies in policy design and pricing. Moreover, regulatory guidance in many African countries is still evolving.
While regulators such as Zimbabwe’s Insurance and Pensions Commission (Ipec) are beginning to emphasise climate related disclosures and risk management, comprehensive ESG integration into insurance laws is still in its infancy.
Despite these obstacles, the opportunities far outweigh challenges. For insurers, green underwriting offers a path to future-proofing their business models. Climate change is not a hypothetical scenario. It is a present and escalating threat that affects underwriting profitability, claims frequency, and asset valuation.
Insurers that fail to adapt may find themselves overwhelmed by payouts, litigation, or loss of market trust. On the other hand, those that embrace ESG risk assessment can position themselves as leaders in a rapidly changing world, attracting clients, investors and regulators who prioritise sustainability.
In Zimbabwe, there is room for innovation. Insurance companies can collaborate with meteorological agencies, universities and environmental organisations to build data systems that support green underwriting.
Insurtech solutions, including satellite data, AI-based climate models and blockchain for transparent ESG reporting, can enable more accurate and timely assessments of environmental risk. Partnerships with the agriculture, housing and transport sectors can also help in embedding green risk management practices across the economy.
Furthermore, green underwriting is a strategic way for insurers to align with national climate and development policies. Zimbabwe’s National Development Strategy 1 (NDS1) and its Nationally Determined Contributions (NDCs) under the Paris Agreement emphasise climate resilience, low carbon growth and green financing. By aligning insurance products with these policy goals, insurers can support broader national objectives, while tapping into emerging green markets.
Public education is also key. Policyholders need to understand why green underwriting matters, how their actions influence their premiums and what they can do to mitigate environmental risk. This will require awareness campaigns, training workshops and simple communication strategies that link insurance to real world climate impacts.
For instance, explaining to a farmer how water-efficient irrigation or reduced fertiliser use can lower their premiums, while increasing climate resilience may motivate broader behavioural change.
Looking ahead, the future of green underwriting will depend on collaboration among regulators insurers policymakers and communities. These groups must work together to build a more resilient, transparent and sustainable insurance ecosystem.
Regulatory bodies like Ipec can provide ESG guidelines and monitoring tools while insurers can pilot innovative products. Also, academia can offer critical research and data support and government can introduce incentives that make green insurance more accessible.
In conclusion, green underwriting is not a passing trend but an essential evolution in how the insurance sector responds to environmental challenges of our time. It reflects a necessary shift toward long-term sustainability risk awareness and shared responsibility across all sectors of society.
Bingura is a sustainability and ESG consultant. These weekly New Horizon articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.
