An Emergence of Green Insurance in the Thai Market

Thailand is among the first movers in green insurance. Its insurance regulatory body, the Office of Insurance Commission (OIC), has recently pledged in the OIC's Fourth Insurance Development Plan (2021-2025) and made commitments to actively contribute to sustainable development in the insurance industry. This contribution will mainly take the form of promoting environmentally beneficial insurance products. Some examples of sustainability in insurance products include: Green home insurance, renewable energy insurance, fuel-efficient discount to customers using electric or hybrid vehicles, green building insurance, and directors & officers insurance offering environmental litigation protection to directors. 

Sustainability is an increasingly important issue for many people, especially in the business world. It is undeniable that the topic of sustainability has an impact on everyone and every industry across the world in all aspects and at every level. The insurance sector is no different as it shows an increasing interest in several of the topics covered by sustainability. Insurers who took advantage of these new opportunities were able to capture a new and larger customer base in the market, and a crucial lesson learned is that insurers should always seek out new trends that can help differentiate them from their competitors.

Sustainability and green insurance is the new trend to keep an eye on in the insurance industry. This trend is in line with a theme in the Office of Insurance Commission (OIC)'s Fourth Development Plan which encourages the insurance industry to contribute to Thailand’s sustainable development in terms of environmental, social and governance (ESG) practices and which contemplates the insurance system playing a part in improving the country’s economy and society.

What sustainability and green initiatives look like in the insurance landscape?

There are numerous opportunities to incorporate sustainability into insurance. Sustainability in the insurance landscape may include lower premiums for the green industry or electric vehicles (EVs), determining incentives and tax measures for sustainable/green insurance, promoting new sustainable/green products, and allowing investments in projects that meet the sustainability/green criteria. Sustainable/green insurance could also be in the form of new products intended to address climate change, or products that encourage customers' sustainability and green behaviors. Moreover, sustainability-related practices are predicted to be incorporated into the operations of businesses and ventures across all industries and jurisdictions. For example, insurance companies may require companies to uphold ESG principles to be eligible for certain insurance policies, and ESG practices can be a condition for a permit or concession required for the project.

A glance around the globe

Globally, insurers are progressively placing a high priority on sustainability. This increased focus began with global awareness on climate change which underlined the need for more sustainable/green products and behaviors. For insurance, promoting and driving sustainability can help insurers quantify risk and thus mitigate risks better. The United Nations Environment Programme Finance Initiative (UNEPFI) Principles for Sustainable Insurance (PSI) is a manual that the UNEPFI released on how the insurance business should manage sustainability issues. In order for insurers to better understand vulnerabilities, risk and mitigation in a more risk-aware environment, this policy guide is intended expressly to help insurers and guide their self-alignment with ESG standards.

Examples of sustainability in insurance products

We have seen meaningful movements from international insurers on this front. Sustainable/green insurance could be designed and developed into a wide-range of products. Some examples of sustainable/green insurance products are provided below:

• Green home insurance: Insurers provide homeowners with insurance discounts or add-ons that help them save money and encourage them to construct with eco-friendly materials and consume less energy. In the event that a disaster ruins their homes, homeowners may choose to switch to more eco-friendly materials and appliances because their insurers will usually pay for the higher cost of such replacements.
• Renewable energy insurance: Renewable energy sources have a significant advantage in the fight against climate change, but they are also very expensive and fraught with risks. In order to support their growth and reduce their risks, insurers provide renewable energy insurance policies to technical companies and people. For instance, throughout the project development stage, insurers may cover engineering and construction risks. Others might also provide assistance with revenue loss and business interruption support.
• Property loss mitigation discount: Insurers may consider offering premium credits to homeowners who use mitigation devices or materials or construction techniques which can reduce loss from catastrophes.
• Usage-based car insurance (pay as you go / low mileage discount): Based on how much they drive, this kind of policy offers auto insurance to drivers. Usage-based insurance monitors driving behavior using GPS or mobile phone technologies, as well as through plugged-in devices in car ports. Customers can receive lower rates while lowering emissions because fewer kilometers driven on the road indicates a decreased likelihood of an accident.
• Fuel-efficient discount: Premium discount or special insurance package could be designed and offered to customers using electric or hybrid vehicles.
• Green building insurance: For commercial line, this product could encourage property developers to build sustainable and green buildings which may involve design, specification, and materials to preserve the environment and at the same time protect loss from climate risk.
• Directors & officers insurance: Insurers may consider offering optional environmental or global warming litigation protection to directors due to the increase of litigation cases against corporations that are alleged to contribute to climate change.

While these products may seem new to the Thai insurance industry, some Thailand-based insurers have begun offering products which could fall under the category of sustainable/green insurance. For example, insurance policies that automatically switch on when the driver starts the car, aiming to cut the costs of automotive cover by as much as 40%.

Benefits of the first mover in the Thai market

Sustainability is here to stay and there are advantages to embracing sustainability trends quickly, including but not limited to:

• Becoming a leader in this new field.
• Building a sustainable/green brand name which helps in terms of reputation and also attract customers sharing the same value.
• Increasing market shares by expanding to new sectors such as EVs, green building insurance and green projects insurance.
• Having the ability to offer new/niche products and become a leader in such new or niche markets.
• Operating the business in the new direction that is in line with the regulator's plan — opening up the opportunity to work alongside the regulator.

Final notes

This article is the first in our Sustainability and Insurance series, with more to follow. We hope you found this to be resourceful and insightful. Please tune in for the second article in this series where we will further discuss Green Insurance in Thai markets and the regulator's perspective.”

“A global movement: Thailand's insurance regulatory body commitment In our first article, we discussed sustainability and green insurance as well as some examples and benefits for the first mover to this trend. The question we are discussing in this article is whether authorities in different jurisdictions have implemented any concrete policy in the pursuit of sustainability and whether
Thailand is committed to this global trend.

Regulators' movement at a global level 

The International Association of Insurance Supervisors (IAIS)
The IAIS is responsible for developing and assisting in the implementation of policies, rules, and other
principles as well as supporting materials for the regulation of the insurance sector. The IAIS is
comprised of a group of insurance supervisors and regulators from more than 200 jurisdictions that urges insurers to consider the advantages and risks of sustainability and the environment. Recently, the IAIS mentioned in its 2021 Global Insurance Market Report (GIMAR) that more than 35% of the investment assets of insurers, including equities and corporate debt, loans and mortgages, sovereign bonds, and real estate, could be deemed "climate-relevant," or exposed to climate risks.

The European Commission
Following the 2021 GIMAR of the IAIS, the European Commission published proposals requiring
insurers to determine if they have material exposures to climate change risks and, if so, to determine the impact on the business using at least two long-term climate-change risk scenarios every three years. This  shows that the IAIS and the European Commission are aware of the potential effects that climate change may have on the insurance sector. However, given there are no clear, explicit legislation in the EU controlling insurance risk management for sustainability and Environmental, Social, and Governance (ESG), we may say that the journey towards greener and more socially conscious finance and insurance is still in progress. Some key progressions from the European Commission in recent years include:
∙ In 2018, the European Insurance and Occupational Pensions Authority (EIOPA) releases its first
recommendations on incorporating ESG and climate risks into Solvency II.
∙ In 2019, the EU Sustainable Finance Disclosure Regulation is entered into force.
∙ In 2020, EIOPA publishes a consultation paper on the use of climate change scenarios in Own
Risk and Solvency Assessment (ORSA).
The United Nations (UN)
When the UN Environment Programme (UNEP) gathered insurance regulators and supervisors from all around the world to organize the Sustainable Insurance Forum for Supervisors (SIF), it was another
encouraging development for green and sustainable insurance. According to its work program, the SIF
encourages high-level policy engagement and joint declarations, facilitates international collaboration and information sharing, and conducts research on emerging challenges. Launched in 2016, the SIF has been the go-to platform for insurance supervisors and regulators who wish to tackle issues regarding sustainability. The SIF has already hosted 8 physical meetings across the world before the global pandemic, and hosted a number of virtual meetings since then. Some key progressions from the European Commission in recent years include:

∙ In 2016, the UNEP sponsors the establishment of the SIF, an organization made up of 30 global
insurance supervisors who are focused on climate change issues and support other ESG goals.
∙ In 2019, the UN-convened Net-Zero Asset Owner Alliance in partnership with the PRI is
launched.
∙ In 2021, the UNEP Finance Initiative launches the Net-Zero Banking Alliance, and the Net-Zero
Insurance Alliance is born.
Source: The ESG Agenda and Insurance: Regulatory Developments, Goals and Limitations |
International Insurance Society
The OIC & the Insurance Development Plan
The Office of Insurance Commission (OIC), Thailand's insurance regulatory body, has committed to
actively encourage the growth of the insurance industry. The importance of the insurance sector's
contribution to sustainable development is highlighted in the OIC's Fourth Insurance Development Plan (2021-2025), a five-year national plan created by the OIC in collaboration with the private sector.
The Fourth Insurance Development Plan (2021-2025) places an emphasis on the promotion of insurance products that benefit the environment (such as tree insurance to promote tree planting), lowering premiums for green businesses and electric vehicles, and providing incentives through tax measures and rewards to insurance companies that adhere to ESG standards. Sustainability initiatives noted in the plan can be divided into these four critical areas: Source: Green Bond Market Survey for Thailand: Insights on the Perspectives of Institutional Investors and Underwriters (adb.org)
The aforementioned key concepts serve as proof that the OIC intends to advance green and sustainable
insurance in the foreseeable future. The OIC also mentions more specific examples and potential

incentives from the necessary government authorities in order to assure that such aims might be achieved, as demonstrated in the diagram below.
Source: aephnphathnaakaarprakanphay_chbabthii_4_hnangsuue_ang.pdf (oic.or.th)
In terms of the timeline, the Fourth Insurance Development Plan prescribes the following milestones:
Source: aephnphathnaakaarprakanphay_chbabthii_4_hnangsuue_ang.pdf (oic.or.th)
Sustainability is a priority for many regulators, not only the OIC. The Fiscal Policy Office, BOT, SEC,
OIC, and SET are just a few of the financial sector regulators in Thailand who are aware of their roles in promoting sustainable growth. Thailand's financial regulators aim to revolutionize the financial sector by creating the Sustainable Finance Initiatives which aims to create a commercially viable and sustainable Thai financial sector by 2025 that (a) plays a significant role in financing the real economy's transition and directs capital flows towards sustainable growth and development; and (b) successfully manages financial risks resulting from climate change, resource depletion, environmental degradation, social and governance issues. The Initiatives' primary goals are:

Source: Sustainable_Finance_Initiatives_for_Thailand.pdf (bot.or.th)

Final notes
Global and local regulators have taken action on sustainability and green insurance. From our experience, Thai regulators tend to issue policies, regulations and guidelines for the purposes of promoting the principles outlined in their development plans. As sustainability and green insurance are prescribed in the OIC’s Fourth Insurance Development Plan (2021-2025), it is likely that the OIC will in the future prescribe supporting measures or incentives.”