Environmental and social risks constitute the majority of the challenges we face globally, accounting for six of the top ten risks over a two-year time horizon, and for seven of them over ten years [
1]. The responses to these challenges combine a number of private and public initiatives. While public–private partnerships hold promise as the more effective action [
2], they need to better integrate sustainability concepts [
3]. Thus, stand-alone but coordinated private efforts are a vital component of the responses to these challenges, both because of the role of the private sector in environmental degradation and because of its role in financial investments [
4]. The insurance sector accounted for more than six percent of global GDP in 2017 [
5] and therefore, in this context, should be an important component of these efforts. However, it is not clear how customers view the role and priorities the insurance sector should have when facing these challenges, especially when compared with other sectors [
6]. This research aimed to understand the views of Swiss personal insurance customers to guide the contribution of the insurance sector in tackling these environmental and social risks.
1.1. Sustainability and the Private Sector
Sustainability is an important and increasingly significant component of business strategy. It is usually defined as comprising environmental, social, and governance (ESG) aspects, and this definition has evolved organically over time from corporate social responsibility (CSR) efforts [
7]. One of the more recent frameworks was provided by the United Nations via their 17 Sustainable Development Goals (SDGs) [
8]. The vast majority of global companies issue sustainability reports tracking their progress towards meeting sustainability targets [
9]. At the same time, two thirds of them recognize climate change as a risk to their business, while social elements are acknowledged as a risk by half of global companies. Indeed, while significant and steady progress has been made towards achieving the United Nations sustainable development goals [
10], it is also clear we will fail to meet the overall 2 °C global warming target and are on a trajectory to miss the 3 °C target as well [
11]. Anthropogenic climate change is a reality we need to face, and there is no alternative to sustainable development. Rather than eroding competitiveness, sustainability can both lower costs and drive business innovation [
12]. A successful sustainability strategy needs to be part of a company’s DNA, and coordinate the pursuit of all goals, rather than pursue them individually [
13]. Several conceptual models have been developed to map sustainability strategies and supporting functional strategies [
14,
15,
16]. Sustainable business models have been applied to at least 14 different business areas across 27 subjects [
17]. Reporting on sustainability, especially environmental efforts, has become mandatory in several countries, and research has addressed the impact of reporting on financing and risk management, and its role in informing public policy [
18]. Besides these normative efforts, research has found that the upfront cost of CSR efforts is more than offset by their positive effects over the medium- and long-term time horizons [
19]. However, these effects appear to be modest in financial terms [
20].
Publications have focused on broader political questions or have been written from a practitioner’s point of view. Academic research has been sparse and has generated a stream of case studies of companies intercepting macro developments towards sustainable development and adapting them to their business realities [
21]. However, it is difficult to transfer SDG goals from the national scale to the highly variable context of individual businesses [
22]. While it is generally acknowledged that sustainability is important, it is not yet clear what companies should actually do to pursue these goals [
23]. Customer expectations for these efforts are also not yet well-understood. A study of Italian banking customers placed their highest expectations on diversity and equal opportunity and on customer privacy. These expectations do not vary significantly with age and educational level. They do, however, vary by gender, with women expecting significantly higher engagement in CSR activities than men [
24,
25]. A different study in Thailand found a strong link between DESG (digital environmental, social, and governance) efforts and gender, and concurred that women have higher expectations in this regard. However, it also found that younger, better-educated customers shared these expectations [
26]. In addition, customer preferences for sustainable products vary significantly across industries. In addition, they tend to become weaker the more detailed and immediate the purchase decision [
6]. The generational differences are also unclear. For example, while all generations have favorable attitudes towards organic food, Gen Z has the lowest purchasing behavior [
27]. Environmental value and political orientation have been shown to be better predictors of environmental concerns than age cohort in the United States [
28]. However, another American study showed that millennials are more environmentally conscious [
29]. Supporting this finding, younger generations are more pro-SDG in attitude and behavior in Japan [
30].
Thus, sustainability is considered necessary both to satisfy stakeholder and customer expectations, and as a source of innovation and business development. However, the details on how to pursue these goals are unclear, and the customer expectations informing these decisions are not well understood.
1.2. Sustainability in Insurance
Insurance is a significant component of the economy worldwide; premiums accounted for some 9.4% of GDP in OECD countries in 2020 [
31]. It is part of vital business infrastructure, enabling companies to better understand and manage risk. Insurance reduces the risk of poverty and thus assumes a fundamental social role. It also orchestrates a vast network of service providers through underwriting and claims management. Thus, private insurance can assist governmental authorities in redesigning mitigation and risk transfer strategies for societies [
32,
33] and can be as effective as direct subsidies in driving innovation in sustainability across the overall economy [
34]. Financial service companies can support and direct the transformation of the whole economy; however, they do so in different measures. For example, the public stock market (defined as socially responsible investments and shareholder activism) has only a limited impact on the sustainability of economic performance; lending and venture financing are more directly involved in a company’s funding and have been shown to have a more direct and significant impact [
35].
Insurers have responded in several ways to emerging climate risks beyond better predictive models for losses. They have developed approaches to enable customers to improve their resilience and have developed products to incentivize certain behaviors, such as pay-as-you-drive automotive coverage. They have also become more selective in their risk appetite: for example, by excluding climate liability coverage. The curtailing of risk transfer opportunities can send strong signals to companies to change their behavior [
36,
37]. Engagement in CSR has also been proven to improve insurers’ stability. A study of 94 listed insurance companies linked higher Z-Scores, and therefore lower probability of default, with higher CSR scores, especially those linked with environmental and social efforts. Governance efforts, on the other hand, were not seen as relevant for stability [
38].
Products used to address the risks posed by the climate have long been recognized as a source of market differentiation, business growth, and improved risk selection for insurers [
39]. The focus of sustainability in insurance can vary significantly across lines of business. Green and sustainable efforts in life insurance, for example, have focused on the ethical use of personal genetic data, ethical operations, and firm sustainability rather than on environmental components [
40]. Historically, insurers have tended to be active in social issues and governance. They have been significantly less active regarding environmental issues. Their efforts have focused on internal waste and energy management and greenhouse gas emissions. The development of sustainable products, environmental risk analysis, and sector exclusions are lagging behind [
41].
Because of the systemic nature of climate risk, there is a need for a coherent sustainability strategy encompassing the entire business model of insurers [
42]. However, it is not clear how insurers can leverage customer priorities to build longer-term plans. Customers do not closely associate any sustainability topic with insurance, as is the case for, for example, climate change and the aviation or automotive sectors [
6]. This gives insurers some flexibility to develop a variety of approaches and business models; on the other hand, it makes for a more difficult strategic choice and accompanying communication strategy. Little academic research has been conducted on customer preferences for these strategies, and anecdotal evidence from practitioners we have interviewed is contradictory. However, some research has been published specifically on the views of Swiss insurance customers. Swiss customers have shown little patience for understanding the technical details of insurance and tend to find the topic foreign [
43]. They also do not think insurance is particularly relevant or that it can provide meaningful support regarding their key personal decisions [
44]. On the other hand, they have high trust in insurers and are willing to share personal data to a large extent [
45] and communicate with insurers on their most personal channels [
46]. Thus, while generally open to a closer link with insurers and accepting of their role, Swiss customers do not perceive insurers as particularly interesting or relevant. It is therefore of interest to researchers and practitioners to understand how this sentiment applies to sustainability in an insurance context.
1.3. Research Question
The literature discussed in
Section 1.2. points to the fact that insurers can benefit from sustainability efforts directly while at the same time providing a significant incentive for societal change towards more ethical and beneficial behaviors. However, they seem to be embracing these efforts somewhat reluctantly, especially in their core business. This may potentially be due to the lack of clarity about how businesses can proceed in practice in their specific business environment or an insufficient understanding of actual customer expectations. Our research aimed to support the development of more effective sustainability efforts in insurance by developing a better understanding of customer expectations. We therefore provide the following research question:
What are retail customer expectations for insurers regarding sustainability?
We aimed to understand how the answer may vary with customer demographics, goal type, area of engagement, and across insurance companies to provide practical insights for insurers on their next development efforts in the Swiss market and enrich the existing body of literature.