Sustainability in the insurance sector

Ashleay: Hello and welcome to the “In Your Interest!” podcast, where we dive into the intersection between sustainable development and insurance today. As usual, I'm joined by Sébastien Mc Mahon, Chief Strategist. And today, Mégane Mandruzzato is also with us, who joins us as an expert. She is iA’s sustainability practice leader. So hi, Mégane.

Mégane: Hi, Ashleay. Hi, Sébastien.

Sébastien: Hello Mégane. It's great to have you here.

Mégane: Thank you.

Ashleay: So, we're hearing more and more about sustainability or sustainable development. Could you explain it to us?

Mégane: Yes. Of course. The majority of companies will use sustainability, sustainable development or corporate social responsibility as synonyms. Sustainability could be defined as a decision tool. So we want to do “doing well by doing good”. You want to take the best decision possible and create a positive impact. And maybe you'll hear often “ESG factors”. ESG factors: the environmental, social and governance factors, are new tools to track progress and mitigate risk.

Sébastien: Yeah, and internally at iA, every decision that we make, investment decision, business decision, needs to go through the lens of ESG. So it's not just something that you write down as a policy. It's a way of doing business, right?

Mégane: Exactly. It's a way of thinking. And we can use this thinking in all the decisions we can take.

Ashleay: Yeah, absolutely. But why is this important? I mean, I have an idea, but I'll let the pros...

Sébastien: You want to hear it from the expert.

Ashleay: Yeah.

Mégane: Yes. Of course. Sustainability is a mindset and a mindset for the future generation. So, we want to take a decision for today, but to have a positive impact and benefits for tomorrow and for the next generation. So, we need to have a long-term vision and objective.

Ashleay: I see. And how does this relate to the context of insurance and why is it important?

Mégane: The business model of an insurer is based on two main roles. Firstly, it is a risk manager and secondly an institutional investor. So, in both roles you need to have a long-term vision and objective. And at the same time when a customer comes to an insurer, they will pay premiums and that insurer will reinvest in the market, in the stock market, in the economy. So, we can see the financial lever in the economic system if you use the sustainable finance.

Ashleay: Right.

Sébastien: Yeah and you know, I can talk for the investment part of this process here and the decisions that that we make at the investment department of an insurer at iA. It's not just about returns, although returns can be driven by ESG factors. You know, there's been some studies I mean, we've discussed in the past, and you mentioned that there were some studies about this, that the companies that do integrate sustainability in their business model will tend to deliver superior returns. But also on top of that, you can see that businesses that are working hard to become better corporate citizens also are well perceived by investors, and thus they give better, let's say, stock market returns over the long run.

Ashleay: Absolutely, yes. And in the ESG factors, you mentioned the environment. Can you describe the impact of climate change on the insurance sector?

Mégane: Really good question, Ashleay. Thank you. One result of the climate change is an increase of extreme weather events. So, for example, we can see more car accidents or house damage. And this is an impact in customers’ lives. So insurers need to adapt product and services. Another example, when a customer lives close to the coast, he will have more exposure to some various due to the coastal erosion or mental issues such as anxiety. So, it's really important to consider climate change in new products and services. And customers need to be accompanied.

Sébastien: Yeah, so you need to be able to turn to an insurer that will fill your needs depending on where you live. If you live, you know, in the north of Canada and you have different needs, you don't have access to the same resources. The internet might not be so good. You need to be able to speak to someone or if you need, if you live near, as you said, near to the coast or somewhere where, you know, extreme climate change is showing a lot more when there's, you know, drier parts of the country or whatever and you can have forest fires. You need insurers to be able to service these regions as well. So, it's an important impact of, you know, the fabric of society.

Mégane: Yes, because all customers don't have the same needs. So, we need to be flexible.

Sébastien: To adapt to the reality of the population.

Mégane: Exactly.

Ashleay: And in ESG, the S refers to social issues. How does this relate to the insurance sector?

Mégane: An insurer has a lot of stakeholders, so we need to consider all the different stakeholders. In this sector we can have an influence to promote better health habits, for example, and we can have this influence for the employees, but also in the communities or for the customer. And one example is I think, Sébastien, you can talk about that, but the financial literacy, we hear a lot about your podcast and how we can be more accessible in the insurance sector. So these kind of services could be developed for the customer, for the different stakeholders.

Sébastien: Our podcast, Ashleay and I, this podcast. I just want to correct there.

Mégane: Sorry!

Sébastien: No but financial education, financial health, healthy lifestyle. We had a guest about you know, how to eat well, you know, we kind of, we like to touch a bit of everything. But yes, it is a social responsibility. People turn to insurers for, you know, the paix d’esprit, how would you say in English…

Mégane: Peace of mind.

Sébastien: Peace of mind. Thank you. So, for peace of mind. That was the French slash English part of the podcast. So, it's not just, alright, I'm paying my insurance premium and if something happens and I'm going to get, you know, an amount of money, you want the, as an insurer, you want to play a role in the everyday life of your clients.

Ashleay: And I mean, even just I think having documents, being accessible, everything is open. So that's one thing that we can pride ourselves on, I think, and as an insurer, it's very important because we touch on multiple aspects of everyone's lives.

Sébastien: Yeah. And also, you know, philanthropy is a part of that too, where insurers tend to be very involved in the local community. So, you have all of these.

Ashleay: And as for the G for governance, the link seems a little bit less obvious with sustainability and insurance. Maybe you could shed some light on this.

Mégane: Yes. Sébastien, just talked about the peace of mind of the customer. And the governance is the foundation of a company. So, it's essential for the customer confidence. We want to have ethical business practices, transparency, compliance and all these aspects are really important for the customers. Another thing, and just before I talk about risk management, it's really important also. But we are in the 21st century and cybersecurity is a high risk in our society, so it's really important to develop all the practices we need to be sure we don't have cyberattacks or other kinds of risks. For the customer, we can also disclose a lot of documents and the customer can read all these documents and learn a lot about the different practices of the company.

Sébastien: Yeah, and in ESG the G comes last. But governance is pretty much the most important of the three letters. Because if you don't have good governance, you won't likely have practices that are favorable to good environmental and social practices.

Mégane: We try to have the perfect balance between the E, the S, and the G, but you're right when you say the G is the foundation to integrate the E and the S in our society.

Ashleay: And for some of our listeners right now, this could be maybe a little bit of a new domain. Can you tell us a bit about how you were led to choose to go into sustainable finance?

Mégane: Yes, of course. In my case, sustainability is in my beliefs. So I try to incorporate this in all I did in the past and today. Just before I worked at iA, I was a global market analyst and my job was to find new opportunities and new products for new markets. And it was really important to consider all the ESG factors in this decision to be sure we can have an impact in this new country. So now I am working in sustainable finance because it sees an essential, often forgotten lever for making the world a better place. Sébastien, may I ask you, as an investor how do you integrate sustainability in your practices?

Sébastien: Yeah, sure. That's an important question. And as you said, we need to invest the money that we get from the insurance premiums. And as an investor, you are, let's say you invest in the stock market. You are a shareholder so you're an owner of the company and you have a right to vote to influence the company's practices. So, what we tend to do is we tend to find companies that are either already very good corporate citizens or those that are willing to become good corporate citizens. And we buy these companies, we cast our votes to keep steering these enterprises in the right direction so that, you know, we can close the loop, that as an investor, you buy a share of the company and you influence its direction, and then you get the reward, you know, for, you know, making, as you said, making better things the better way, something like that. But this is this is how you can have an impact with your money. You need to exercise your voting right.

Ashleay: That's fantastic. And so that's pretty much it for our podcast on the intersection of sustainability and insurance. Many thanks to you, Sébastien, and to you, Mégane for clarifying our understanding of the subject. We hope you found it informative and we are looking forward to seeing you next week.