Professional indemnity: ethical insurance

The times they are a-changing. In the world of insurance, as in most other
areas of life, that means a growing focus on ethical issues, as people try to
reduce the negative social and environmental impacts they have on the planet.
It’s still early days but, in the future, it could become commonplace for
accountants to act ethically when taking out professional indemnity insurance.

In consumer markets, ethical insurance is still a novel concept, though
providers such as the
Co-Operative
Insurance Society (see box) are developing new products with ethical
credentials. In the business world too, ethical insurance is still in nascent
form. Ethical Investment Research Services, a not-for-profit organisation that
looks at companies’ social, environmental and ethical policies and practices,
notes: ‘For the general insurance of people’s homes, vehicles, holidays and
businesses, there is currently little choice for those who want to put their
principles into practice in these areas as across all their finances. However,
an increasing number of insurance companies… have adopted SRI (socially
responsible investment) policies across the whole of their portfolios, and are
adopting engagement strategies to use their influence to encourage companies to
become more socially and environmentally responsible.’

The issue is taken seriously at the highest international levels.
The United Nations Environment
Programme (UNEP)
encourages insurance companies to sign up to a voluntary ‘Statement of
Environmental Commitment’. Participating companies pledge to aim at achieving a
balance in terms of economic development, the welfare of people and a sound
environment. They are encouraged to incorporate environmental considerations
into their internal and external business activities. A number of UK insurers
have signed up to this initiative.

Accountancy firms with a desire to act ethically in every aspect of their
practice could ask their existing insurance company whether it has signed up to
the UNEP statement, and if not, why not. The statement is accessible online (see
www.unepfi.org/signatories/statements/ii/).

One UK insurance company trying to raise awareness of ethical insurance is
Naturesave Policies
Ltd, an underwriter and broker.

The company describes itself as ‘an ethical insurance intermediary, offering
personal and commercial insurance policies’. Its stated aim is ‘to encourage the
adoption of more environmentally aware trading practices in the business
community, by using the insurance industry as a vehicle for sustainable
development’. Wherever it is possible, the company aims to only use suppliers
that support sustainable business practices.

Naturesave can
help with a wide range of commercial insurance needs of key personnel, directors
and officers, as well as matters relating to group annual travel, group personal
accident and illness and PII. Its ethical credentials are beyond question.

Naturesave puts 10% of all its personal insurance premiums into a fund (The
Naturesave Trust) to benefit specific environmental and conservation projects.
For business clients taking out certain commercial insurance policies, the
company offers a free environmental performance review to demonstrate ways in
which the organisation could adopt more environmentally aware trading practices.
It also provides general practical advice and guidance towards more efficient
operational activities.

‘We are very serious about what we do,’ says Naturesave’s managing director,
Matthew Criddle. ‘We are attractive to an organisation which has ethics, because
most insurance companies don’t. We are quite small, but growing quickly.’

Although Naturesave underwrites some areas of insurance, it acts purely as a
broker for PII. ‘We go to specific insurers for specific classes of business,’
Criddle says. ‘We will give them our business as long as they give us a good
service.’ Naturesave then uses its buying power to try and stimulate greater
awareness of sustainability issues, and potentially more ethical behaviour. ‘We
politely invite them [insurance companies] to think about the implications of
what they are doing,’ Criddle says. As Naturesave’s website states: ‘The more
policyholders we have, the more pressure we can place on general insurers to
adopt this ethical approach.’

Naturesave has been in business for 12 years, so is no recent upstart trying
to cash in on concerns with green issues. Criddle previously worked in the
Lloyd’s insurance market and is somewhat cynical about the insurance industry,
seeing it as generally short-termist and greedy, with insurance companies always
willing to undercut each other in a soft market. ‘It’s hard to take the moral
ground, but we are showing it’s possible,’ Criddle says. ‘Price is not the main
determinant for what we are doing.’

That doesn’t necessarily mean that premiums are more expensive than
elsewhere. They are competitive, he claims. However, high-quality service, for
example in terms of the speed with which claims are settled, is a high priority
for the company.

Criddle is keen for customers to come to his company because of its
reputation for service, rather than just focusing on the ethical aspect. ‘I am
not an activist,’ he says. ‘I am not someone who wants to dismantle Hawk jets
bound for Indonesia.’ However, he does believe that environmental damage and the
modern world’s reliance on fossil fuel is as big an issue today as slavery was
in the past. ‘It’s clearly one of the biggest concerns that face us,’ he says.

Craig Bennett, head of the corporate accountability and trade team at Friends
of the Earth, says that over the last ten years or so there has been a ‘massive
growth’ in interest in ethical issues. Key amongst these is the concern to
ensure that major outgoings and pension fund payments are invested ethically.

‘It’s pretty much a no-brainer that if you are an organisation that likes to
claim some kind of ethical credibility, like a charity, university or a local
authority, that you don’t want to have your pension invested in companies that

are destroying the environment,’ Bennett says. ‘Nowadays, that’s considered
mainstream.’ Large FTSE companies are even concerned about such matters.

‘There’s no reason why the same principles should not apply to any other
large investments or regular outgoings,’ Bennett says. ‘For big professional
firms, indemnity insurance will represent one of their biggest regular
outgoings, so it’s a perfectly logical extension to look for ethical providers
of indemnity insurance.’

In general, Bennett notes, all organisations should be concerned about their
footprint. For some companies there are obvious issues to address ­ mining
companies have a very direct effect on the environment, for example. ‘If you are
in an office-based services industry, you might worry about your use of paper
and energy in the office,’ Bennett says, ‘but the main thing that you should be
concerned about is what you do with your money. If the money you spend finally
ends up funding dodgy companies to do dodgy things, that’s not very responsible.
That’s not reducing your footprint.’

Monitoring the behaviour of insurance companies, therefore, and placing your
business accordingly is an entirely logical thing to do, Bennett believes.
‘Insurance companies represent some of the biggest investors in the world,’ he
says.

Bennett also suggests that seeking out ethical PII could have a highly
positive impact on how staff feel about their firm as a place to work.
Demonstrating strong corporate ethics can have a good effect on recruitment and
retention. ‘There’s something rather personal about indemnity insurance,’
Bennett says. If the firm is paying a premium to indemnify the work of their
people, that does create a personal link between individuals and the insurer.
‘So you can imagine it might just matter to staff how that money is being
used,’ Bennett says.

What is ethical insurance?

While ethical investment is a concept familiar to most people, ethical
insurance is less so. Nevertheless, in the insurance world, ‘ethical insurance’
can be applied both to the life and pensions area, in terms of where money is
invested, and to general insurance – cover for cars, homes, travel and
businesses.

In this second area, ethical insurance is primarily about trying to support
sustainable development. The chain of thought is roughly this: car use and
aeroplane travel (for example) causeCO2 emissions; high CO2 emissions lead to
global warming and climate change; climate change can create disasters such as
extreme flooding; and disasters trigger insurance claims.

Insurers (and brokers) who want to take an ethical stance can therefore try
to promote green policies, both through their own direct actions and by the
pressure they can potentially bring to bear on other companies. Customers who
care about such issues can place their business with these insurers, and thus do
their bit to save the planet.

One insurance company long-associated with ethical issues is the Co-Operative
Insurance Society (CIS), which now offers eco-friendly car insurance. The CIS
pledges to offset 20%of customers’cars’CO2 emissions by investing in projects
such as reforestation, renewable energy sources and Third World education
schemes. Customers with cars in tax band A – those that emit less than 100g
ofCO2 per kilometre –will also benefit from a 10%discount.

‘Our research shows that people would choose an eco friendly product over a
non eco-friendly product if they thought the product was similar,’ says a CIS
spokesman. ‘They still want a good product at a good price.’

Businesses wanting to act ethically can also decide to seek out ethical
insurance, by acting through a broker such as Naturesave Policies Limited, which
has positioned itself as working to promote sustainable development, as well as
to provide first class insurance services.