Series Report ④: Insurance fund investment is getting more "green"

Remember when Asian wild elephant herds started from Yunnan and migrated all the way north, which became popular across the Internet? As Asian wild elephants "stroll around and eat" all the way, the public also noticed that they had caused damage to residents 'houses, farmland, and production facilities. This detail made the public aware of the power of green insurance: wild elephant herds caused certain economic losses to crops along the way, and the insurance industry quickly followed up on claims and joined hands with all parties to protect the ecology.

"To do a good job in green finance, we cannot do without the solid backing of green insurance." Ren Yujie, director of the Green Finance Research Center of the International Institute of Green Finance at the Central University of Finance and Economics, told "Environmental Economics" that in recent years, my country's green insurance development has entered the fast lane. Whether it is green insurance on the debt-side or green investment on the asset-side, the participation of insurance companies is increasing.

On March 27, 2024, the People's Bank of China, in conjunction with the National Development and Reform Commission and other seven departments, issued the "Guiding Opinions on Further Strengthening Financial Support for Green and Low-Carbon Development"(hereinafter referred to as the "Guiding Opinions"). Immediately afterwards, the State Financial Supervision and Administration issued the "Guiding Opinions on Promoting the High-Quality Development of Green Insurance"(hereinafter referred to as the "Opinions"). The two top-level guidelines have pointed out the path for the next step of green insurance development.

Deng Jia/Photo

policy system has been continuously improved

What is green insurance? During the interview, Shi Yichen, chief economist of China Finance Green Index and senior academic consultant of the International Institute of Green Finance of the Central University of Finance and Economics, told "Environmental Economics" that green insurance is an important part of green finance and plays an "economic role through the debt and asset sides." Shock absorber "and" social stabilizer "can help the comprehensive green transformation of the economy and society through environmental risk management, supporting the development of green industries, guiding green investment, risk reduction and promoting national green actions.

The development of green insurance is inseparable from policy guidance and support. In August 2016, the People's Bank of China and other seven departments jointly issued the "Guiding Opinions on Building a Green Financial System", in which green insurance has a separate chapter. While proposing to vigorously develop green insurance, it encourages and supports the innovative development of green insurance products to provide a top-level design for the development of green insurance.

Since then, industry policies have begun to become more detailed, and a number of policies related to green insurance have been introduced one after another, providing a good growth ground for green insurance.

In June 2022, the former Banking and Insurance Regulatory Commission of China issued the "Guidelines for Green Finance for the Banking and Insurance Industry", raising the development of green finance in the banking and insurance industry to a strategic level; in November of the same year, the "Green Insurance Business Statistical System" was issued again."Notice" clarified the definition of green insurance for the first time and established a green insurance business statistical system, so that green insurance can be counted and monitored, established basic standards for evaluation, laying a solid foundation for the development of green insurance.

In September 2023, the Insurance Industry Association of China issued the "Green Insurance Classification Guidelines (2023 Edition)", which is the world's first industry specification to comprehensively cover green insurance products, green investment in insurance funds, and green operations of insurance companies, further refining green insurance product service scenarios and fields, and determine quantitative indicators and data statistical rules for green investment and green operations; In December of the same year, the "Guidelines for Environmental, Social and Governance Information Disclosure of Insurance Institutions" was issued, which was the first industry self-discipline document in China focusing on environmental, social and governance information disclosure of the insurance industry, guiding the industry to further improve management efficiency and disclosure quality.

Policy support is one of the key factors in promoting the sustainable development of green insurance. Shi Yichen told reporters that the "Guiding Opinions" set higher goals for the development of green insurance in multiple dimensions such as standard system construction, products and services, insurance fund utilization and risk management. It is mainly proposed to improve the insurance protection system for major risks related to climate change and establish an assessment and prediction model for climate change related risks, explore the establishment of a linkage mechanism between corporate carbon emission levels and insurance pricing, and promote the development of new energy vehicle insurance.

"The" Opinions "also clarify the development goals, key tasks and guarantee measures of green insurance to ensure the high-quality development of green insurance." Shi Yichen said that this will guide the industry to accelerate innovative development in key areas of green insurance and effectively improve its ability to serve the overall situation of green development.

In an interview with "Environmental Economics", the relevant person in charge of China Life Property Insurance said that insurance is an important part of finance, and the "Guiding Opinions" make important arrangements for green insurance, which will help promote the development of green insurance to a higher level and better leverage Risk management responsibilities. At the same time, the Guiding Opinions 'overall deployment of optimizing and improving green financial infrastructure (such as optimizing the green finance standard system and strengthening the information disclosure restraint mechanism) can also enhance the ability of insurance companies to identify and evaluate green and low-carbon transformation risks, and promote the insurance industry. Increase support for green, low-carbon, and circular economies.

Rapid development challenges remain

The insurance industry has made some achievements in assisting green development and transformation.

"At present, my country's green insurance overall shows a trend of high-quality development." Shi Yichen told reporters that from the perspective of market practice, the scale of green insurance products continues to grow, the digital transformation of environmental liability insurance develops steadily, the standardization of new energy automobile insurance develops rapidly, and the innovative green insurance product matrix continues to expand. Green insurance is enriching product categories and innovating services. A number of active explorations have been made in terms of service types. At the same time, the scale of green insurance asset management has also continued to increase.

The relevant person in charge of China Life Property Insurance told reporters that the scale of the current green insurance business is growing rapidly. With the advancement of the "double carbon" goal, my country's green insurance has shown strong growth momentum and rapid expansion trend. In 2023, my country's green insurance business premium income will reach 229.7 billion yuan, and claims expenses will reach 121.5 billion yuan. "The year-on-year growth rates of green insurance premium income of PICC, Ping An, Pacific Insurance and our company are all higher than the growth rate of all insurance types."

"At the same time, we can deeply feel that the industry attaches great importance to the development of green insurance." The relevant person in charge of China Life Property & Casualty Insurance stated that major market entities have formed medium-and long-term green development plans, fully integrating support for green transformation into the company's strategic plan, and vigorously promoting the development of green finance. For example, our company has researched and formulated the "14th Five-Year Plan for Serving" Double Carbon "Green Development" and the "Work Plan on Doing a Good Job in Green Finance", with in-depth service to the "double carbon" strategy as the key goal and financial supply-side reform and effective demand guidance as the main line of implementation, comprehensively deploy debt-side, investment-side, and operational-side tasks and measures, clarify green development paths, and accelerate the construction of the company's green development pattern.

"Although green insurance is developing rapidly, it still faces many challenges." Shi Yichen further introduced: First, the green insurance legal system has structural deficiencies, and laws and regulations need to be improved urgently. From a legislative perspective, green insurance business development support policies lack legal mandatory binding force. Judging from the green insurance management mechanism, a long-term incentive mechanism and supervision system for green insurance implementers have not yet been established, and risk assessment standards and damage quantification technical standards in many sub-areas have not yet been formed. Second, green insurance has many restrictions in many aspects such as product coverage, product maturity, and product terms, and lacks innovation, resulting in limited overall product scale. Third, due to the lack of green insurance risk prevention policies and mechanisms, the green insurance underwriting capabilities of insurance institutions need to be improved.

The relevant person in charge of China Life Property & Casualty Insurance said that at present, green insurance is still in the primary stage of development, and the quality and efficiency of insurance protection need to be improved. The development of green insurance faces dual challenges on the demand side and the supply side.

On the demand side, companies currently have insufficient understanding of potential risks in non-traditional insurance areas such as carbon reduction and greening, and green insurance risk awareness needs to be stimulated.

The supply side mainly faces three difficulties and challenges. First, there is great pressure on operating efficiency. At present, the loss ratios of core business sectors such as new energy auto insurance are high, resulting in higher green insurance cost ratios and increasing the overall operating pressure on insurance companies. Second, professional capabilities need to be improved. There are many industries in green insurance services and rapid technology iteration and update, posing greater challenges to the professionalism of insurance companies 'product and service supply. Third, the cost of insurance innovation is relatively high. Green insurance is closely related to the low-carbon transformation of the real economy. It involves many new industries and new technologies. The risk characteristics of the underlying insurance policy have significantly changed compared with traditional business areas. Historical underwriting and claim data are not accumulated enough. Insurance product innovation requires investment of many human and financial resources.

Innovative products bloom at multiple points

So, what exactly does green insurance protect? The relevant person in charge of China Life Property Insurance stated that according to the "Notice on the Statistical System for Green Insurance Business" issued by the former Insurance Regulatory Commission of the Bank of China, green insurance adopts classification standards that combine product dimensions and customer dimensions, and can be specifically divided into ESG risk insurance business., green industry insurance business, and green life insurance business.

In order to facilitate customers to have a more comprehensive and in-depth understanding of green insurance products, the "Green Insurance Classification Guidelines (2023 Edition)" shows green insurance products that "see both trees and forests". The first-level catalog is the specific service areas (scenarios) of green insurance products, including helping to respond to extreme weather and climate events, assisting the development of green industries, assisting low-carbon transformation economic activities, assisting environmental improvement, assisting biodiversity protection, and assisting green financial market construction., assisting green, low-carbon and safe social governance, assisting green and low-carbon exchanges and cooperation, assisting green and low-carbon lifestyles, and others. The secondary catalog is the key insurance categories corresponding to the field (scenario), including 16 categories such as meteorological disaster insurance, clean energy insurance, and industrial optimization and upgrading insurance. The three-level catalog is a subdivided insurance category corresponding to insurance categories, including 69 categories such as meteorological disaster insurance, solar energy insurance, and green manufacturing system insurance. The four-level catalog is the example products under the third-level catalog, with a total of more than 150 samples.

As for how to optimize products and services, the "Opinions" point out that banking and insurance institutions should be guided to actively support energy conservation, pollution reduction, carbon reduction, greening, and disaster prevention in key industries and fields, and promote the construction of clean and low-carbon energy systems and the promotion and application of green technologies. It is reported that many insurance companies must work hard on diversified and co-management of environmental risks and actively expand their business in fields such as greening, disaster prevention, pollution reduction, and carbon reduction.

The relevant person in charge of China Life Property and Casualty Insurance told reporters that combined with the company's existing green insurance product system, the current products serving "greening" mainly include carbon sink insurance and green and low-carbon technology insurance. Among them, carbon sink insurance has outstanding innovative achievements and is the first in the country to develop a series of agricultural insurance products for carbon sinks in ecosystems such as forests, wetlands, oceans, and agriculture. The products serving "disaster prevention" mainly include catastrophe insurance and production safety liability insurance. In 2015, China's Urban and Rural Residential Earthquake Catastrophe Insurance Community was established. As a governing unit of the Catastrophe Insurance Community, China Life Property Insurance actively participated in the establishment of the community and system construction, and vigorously promoted the Catastrophe Insurance Community products. In 2023, China Life Property & Casualty Insurance business will provide a risk protection limit of 13.143 billion yuan and pay compensation of 147 million yuan. The products serving "pollution reduction" mainly include environmental pollution liability insurance and ship pollution liability insurance. China Life Property & Casualty Insurance innovatively developed water pollution cleaning expense insurance in 2023 and successfully implemented the Chengdu Dong 'an Lake project, providing 10 million yuan for the water quality of Dong' an Lake. Risk protection, hire professional water quality risk management institutions to carry out risk reduction services, regularly conduct water quality risk tracking and early warning, issue water quality testing reports, and analyze water quality conditions from multiple angles. Comprehensively improve the level and efficiency of water quality management. Serving "carbon reduction" products are mainly products that provide risk protection for low-carbon transformation production and operation activities of customers in high-carbon industries, such as building energy-saving insurance developed for the transformation of the construction industry, and new energy vehicle insurance to promote green living. In 2023 China Life Insurance Property Insurance has provided a total of 3.22 trillion yuan in new energy auto insurance risk protection.

"Recently, the International Institute of Green Finance of the Central University of Finance and Economics and the Natural Resources Defense Association (NRDC) jointly carried out a research project on 'Research on the Path of Insurance Financial Institutions Participating in Transformation Finance to Promote Orderly Transformation' and found that overall, my country's current environmental pollution liability insurance The insurance market in the 'pollution reduction' field, dominated by insurance, is showing a gradual expansion trend, but the overall scale is still relatively limited. At present, the market in the field of 'carbon reduction' is generally in a partial pilot and multi-point flowering stage. Products include low-carbon transformation insurance for fossil energy, low-carbon transformation insurance for the industrial sector, low-carbon transformation insurance for the construction sector, carbon trading insurance and Carbon sinks insurance, etc., new energy auto insurance, renewable resource insurance, etc." Shi Yichen said.

Take multiple measures simultaneously to conduct risk assessment

Many financial institutions are accelerating the conversion of "green" into gold, working together from products, services, investment, and operations. For example, on the investment side, insurance funds invested in green industries such as carbon neutrality and carbon peak have exceeded 1 trillion yuan, which has about doubled in the two years of 2021 and 2022; on the operation side, many insurance companies have The concept of green development has been deeply rooted in the entire operating process, and some insurance companies have established innovative R & D centers to strengthen risk management.

So, how do insurance companies conduct risk assessments when evaluating projects? Shi Yichen told reporters that risk management includes multiple links such as risk identification, risk assessment, risk control and risk monitoring. Among them, risk identification aims to comprehensively identify various risks faced by the project; risk assessment evaluates the identified risks through a combination of qualitative and quantitative methods and analyzes the risk correlation; risk control and monitoring will be based on the risk assessment results, and risk management will be carried out before, during and after the project is carried out through measures such as avoidance, reduction, transfer, and undertaking.

The relevant person in charge of China Life Property & Casualty Insurance stated that when assessing project risks, insurance companies rely on historical underwriting claims data and combine the project's subdivisions and characteristics to calculate the probability of insurance accidents and the intensity of loss; at the same time, they comprehensively consider previously insured business information and measure the accumulation of risks.

In addition to the efforts of insurance institutions, companies must also actively seize opportunities. So, what matters should companies pay attention to when applying for green insurance? "Enterprises applying for green insurance are recommended to comprehensively assess risks, carefully select products, strengthen internal management, and maintain positive interactions with insurance companies." Shi Yichen told reporters that first, companies need to conduct a comprehensive assessment of the environmental pollution risks and climate change risks they may face and accurately identify potential risk factors. Second, companies need to understand insurance terms and scope of liability and choose the products that best meet their needs. Third, since good risk management helps companies obtain premium discounts, companies need to actively implement environmental management and risk control measures. Fourth, reasonably control insurance costs and choose appropriate insurance amounts, deductibles, etc.

China Life Property & Casualty Insurance recommends that insured companies and insurance companies strengthen cooperation and provide detailed risk-related information to help insurance companies accurately assess risk situations and improve risk pricing accuracy. Insurance companies should also continue to improve their risk management capabilities, make full use of the accumulation of internal and external data, deeply explore the risk characteristics of segments, continuously improve risk pricing models, and provide customers with risk consideration underwriting plans, and on this basis, provide green and low-carbon Transformation enterprises with good performance, and appropriate preferential underwriting conditions will be given.

At the same time, industry experts have publicly stated that in the process of developing green insurance business, insurance companies must break the usual product-based statistical method and change the current situation of insufficient understanding of whether the customers they serve are "green-related" and insufficient labeling. Developing green insurance is not only an upgrade of products and services, but also a transformation of concepts and methods. It requires enterprises to accelerate the adjustment of development plans and business directions from top to bottom, proactively deploy in advance, incorporate climate and environmental factors into the risk management system, and handle the relationship between local and overall, current and long-term.

Promising future prospects

In the future, how can green insurance better serve green development?

The relevant person in charge of China Life Property Insurance told reporters that the "Opinions" provide deployment instructions for the high-quality development of green insurance. In the future, insurance companies need to continue to enhance product and service innovation capabilities, optimize risk reduction management mechanisms, improve policy support systems, and increase responses. Insurance protection in key areas such as climate change, green and low-carbon technology insurance, clean energy insurance, carbon insurance, new energy auto insurance, environmental pollution liability insurance, green buildings, and green transportation.

The relevant person in charge of China Life Property and Casualty Insurance said that under the guidance of the "Opinions" and based on its main responsibilities and main businesses, the insurance industry should actively improve its risk management capabilities. First, focus on key protection areas, conduct in-depth research on the needs of clean energy, green transportation, green buildings, low-carbon technology, green agriculture and other fields, enrich insurance products and services, and improve the quality of insurance supply. The second is to focus on areas with greater operating pressure, strengthen risk research in sub-areas, actively introduce external data technology, enrich risk management matrices, optimize scientific pricing models, and strive to promote the improvement of operating costs. The third is to focus on risk reduction management and further promote risk reduction services. Taking China Life Property Insurance as an example, it is necessary to accelerate the iterative promotion of China Life's Intelligent Production Safety Prevention System (CIRS) nationwide to help improve hazard identification and risk assessment capabilities; rely on the "Safe Prevention" risk management platform to promote digital intelligent risk management and improve disaster risk management capabilities. At the same time, the insurance industry should also actively strengthen exchanges and cooperation. Promote the establishment of an industry exchange and discussion mechanism, organize and convene industry seminars to share development results, discuss work ideas, and gather industry forces to jointly seek the overall situation of green development in response to development difficulties such as poor operating efficiency in key areas and insufficient accumulation of underwriting and claims data in innovative areas.

In Shi Yichen's view, under the guidance of the national "double carbon" goal, green insurance will continue to promote product innovation, risk protection, investment support, and regulatory improvement in the future to provide strong support for the comprehensive green transformation of the economy and society.

Shi Yichen further introduced that first, there is great potential for future growth in green insurance risk protection capabilities and investment scale. According to the policy target plan, by 2030, the level of green insurance risk protection and the scale of green investment in insurance funds will be significantly improved. Second, the fields of green insurance products and services will continue to expand in the future. In the future, green insurance will continue to enrich product categories and form a comprehensive development pattern of "multi-level, full industry chain". Third, green insurance innovation models will continue to emerge, such as exploring innovative development models such as "green insurance + services" and "green insurance + technology", pre-insurance services, and improving risk early warning, disaster prevention and reduction capabilities. Fourth, the role of green insurance in supporting the development of green, low-carbon and transformation industries will gradually increase, and will provide full life cycle risk protection and investment support for green and low-carbon industries such as new energy, energy conservation and environmental protection, and green transportation.

The relevant person in charge of China Life Property Insurance told reporters that green development is the background of high-quality development, new productivity itself is green productivity, and green insurance closely serves the development of new productivity. Therefore, we believe that the future development prospects are very impressive.