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Green insurance a promising new climate opportunity
At a global level, insurance products tend to concentrate on energy efficiency, including clean energy, hybrid vehicles and green building certification, although their nature varies widely.
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Green insurance is more than just a sustainable insurance solution; it contributes to society by accelerating the sustainable transformation of the global economy. (Shutterstock/-)
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n recent years, green loan disbursement and the issuance of green bonds in Indonesia have continued to rise as awareness of climate change increases. However, green insurance product development in Indonesia is experiencing little growth.
Green insurance is more than just a sustainable insurance solution; it contributes to society by accelerating the sustainable transformation of the global economy. Therefore, insurance companies play an important role in promoting sustainability and climate resilience by underwriting decisions and investment choices, and by engaging clients on environmental, social and governance (ESG) practices.
At a global level, insurance products tend to concentrate on energy efficiency, including clean energy, hybrid vehicles, and green building certification, although their nature varies widely. Green insurance products are already developed in Indonesia, ranging from agricultural insurance, fishery insurance, earthquake insurance, soil moisture index insurance, etc.
Indonesia has considerable potential to expand its insurance market given the increasing trend toward green residential properties and the prospective electric vehicle (EV) market.
The Indonesian government encourages the national automotive industry to develop an EV ecosystem. Through the Ministry of Energy and Mineral Resources (ESDM), the government is targeting 13 million units of electric two-wheelers and 2 million units of electric four-wheelers by 2030. In terms of EV infrastructure, the Ministry of ESDM is encouraging the development of 32,000 Public Electric Vehicle Charging Stations (SPKLU) and 67,000 Public Electric Vehicle Battery Exchange Stations (SPBKLU) by 2030. From the construction side, the International Finance Corporation (2019) predicted green building financing in Indonesia could reach US$ 200 billion before 2030.
Various policies and regulations have been issued to encourage the development of sustainable financial products and/or services in Indonesia, such as green insurance, including OJK Regulation (POJK) No. 51/POJK.03/2017 concerning the Implementation of Sustainable Finance for Financial Service Institutions, Issuers and Public Companies.
However, industry players find it difficult to develop green insurance products due to the lack of consumer knowledge about green insurance and a lack of industry experts with expertise on the underlying risk and long-term effects of climate change. Another issue that has been raised is the low premium that affects the insurance companies’ profitability. These obstacles make insurance companies reluctant to get involved in green insurance.
