Accelerated change

Decarbonisation is an ubiquitous term nowadays. Although discussions about climate change have been around for the better part of the last half century, it is only in the past 18-24 months that these issues have received the indus- try’s focused attention. The dynamics of climate change are currently still driven by finance providers, who pledge many of their funds and products to the cause of acting responsibly and in accordance with ESG criteria. Larger tenants reinforce the dynamics by actively requesting ESG-compliant assets and thus boost the demand.
 
But environmental concerns are also found in many other contexts. Growth and expansion for instance inevitably lead to questions around soil sealing. This is defined as the covering of soil by buildings, structures, and other layers with completely or partially impermeable artificial material such as asphalt or concrete. It is one of the most intense forms of land take and often irreversible. Soil sealing is directly associated with other soil threats, for example soil biodiversity, flooding and landslides, soil compaction and soil contamination.
 
Most social and economic activities require some form of land take and sealed areas. An expansion of existing settlements puts pressure on sites previously being used for agricultural purposes. According
to the European Environment Agency, the main drivers of land take between 2000-2018 were industrial and commercial land use as well as the extension of residential areas and construction sites. In this period, land take in the EU28 amounted to 539 km²/year, consuming 0.6% of all arable lands and permanent crops, 0.5% of all pastures and mosaic farmlands and 0.3% of all grass- lands. To counter this development, a three-tiered approach is advised, which consists of limiting (L), mitigating (M) and compensating (C) soil sealing. Various measures such as green roofs, permeable surfaces for driveways, reuse of topsoil, but also de-sealing exist already and are among the issues any real estate developer must deal with.

The insurance industry is connected in several ways to the real estate industry. It is one of the largest investors, as insurers are bound to have a stable investment portfolio for the funds
entrusted to them in the form of premium payments for life and other insurances. Furthermore, margins in real estate are still attractive given the low interest rate environment, and in case of a higher volatility of prices or an inflation in the Eurozone it is also a good hedge against that.
 
The real estate industry is also key to insurance companies’ operational business, protecting its clients against the adverse effects from the development and operation of assets. In traditional lines such as property insurance and general liability, prices have recently risen, reflecting the negative results insurers have experienced in a competitive low premium environment. Recent claims have reinforced the focus on business interruption, be it due to tenants going out of business or the increased awareness in the wake of the
Covid-19 pandemic that such events can endanger the very existence of a business operation.
 
Digitisation leads to new exposures in terms of cyber insurance for real estate operators in all sectors. Specific insurance solutions can help to counter the threat emanating from the cyber sphere. Less widely known products such as parametric insurances or loss of footfall insurance cover the probability of a predefined triggering event happening. They are detached from the former principle that damage to one’s own insured property is the only trigger for insurance coverage.
 
As far as real estate investment or asset management is concerned, there are an increasing number of financial professional liability claims. Insurance products like an Investment Management Insurance in the form of a multiline insurance bridge the gap between a cover for criminal deliberate acts of employees, directors and officers and a liability cover for financial loss due to wrongful professional acts. They are a valuable insurance proposition for real estate investment companies and fund managers.