UNIQA Group’s Sustainability Journey: Adapting for a Greener Future

In the face of growing environmental challenges and climate change, insurance companies like UNIQA Group are taking significant steps to embrace sustainability. Andreas Rauter, Head of Sustainability, Ethics & Public Affairs at UNIQA, discusses the company’s ecological transformation and its commitment to exceed ESG requirements in a candid interview with Paul Spittau, Head of Carrier Relations & Insurance Mediation at GrECo Group.

The Economic and Environmental Landscape in CEE

Spittau: Mr Rauter, both our companies are operating in Austria, Central, Eastern, and Southeastern Europe. How do you see the overall economic development of the environment/sustainability topics in these regions?

Despite disparities among countries and stakeholders, we observe a growing momentum towards sustainability-oriented services. Global growth projections indicate a shift towards sustainable practices. This needs to be accompanied by regulation and robust financing which must be split between private and public debt. Regulatory and financial frameworks are essential to support the green transition. 

UNIQA’s Commitment to Sustainability

Spittau: What is UNIQA’s general position on sustainability and could you give us more insight into the Group’s existing sustainability strategy and the associated corporate strategy for the future?

UNIQA is committed to fostering a better life through sustainability. We’ve established five core pillars for our sustainability strategy:

  • Investment Policy: We align investments with ESG criteria, continually assess environmental and social impacts, and incorporate science-based targets into our investment decisions.
  • Product Policy Integration: ESG factors are integrated into our product range and underwriting approach, focusing on risk prevention and mitigation. We’re expanding our offerings to include more sustainable and environmentally friendly products. Moreover, we support our customer on the way to become more sustainable by implementing “green” products and embed higher attention on climate related advisory incorporated in the risk assessment process.
  • Exemplary Business Management: We also conduct our own business actions in alignment with environmental and social goals, including reducing emissions and greening our operations.
  • Transparent Reporting: We actively engage with ESG rating agencies to enhance our ESG rating and continually improve our reporting processes.
  • Stakeholder Management: We also maintain an ongoing dialogue with all our stakeholders and their representatives to exchange information about our goals and positions on current ESG issues frequently. This includes political stakeholders, investors, employees and our customers of course.

The UNIQA set-up:  delivering positive impact for customers, investors, employees, and the public.

Spittau: What is your personal focus and are there dedicated people or teams working exclusively around this topic at UNIQA?

My focus is on internal consultation, stakeholder engagement, and external communication with ESG rating agencies. We’ve onboarded over 40 ESG experts to integrate sustainability across various departments, from investment management to product development. Our aim is to reduce risks, offer opportunities, build trust, and contribute positively to our stakeholders.

Spittau: We heard about UNIQA’s focus especially on “Green Hydrogen”. Could you please explain in more detail what this means?

Rauter: While we’re not exclusively focused on “Green Hydrogen,” we recognize its importance in the renewable energy landscape. It plays a role in transitioning industries like green steel production and heavy vehicle transport. We manage associated risks and seize opportunities within these innovative investments, especially given the support from regulations and subsidies.

Fossil fuels vs. renewables: helping clients to transform

Spittau: According to the media, there has been no underwriting of new business for the coal industry since 2019. From 2025, there will also be restrictions for companies that generate electricity from fossil sources. There are industries (e.g., the chemical industry) that cannot simply do without the use of coal for certain processes. Do restrictions also apply to these companies?

Rauter: We stepped away from coal in early 2019 due to its negative environmental impact. All industries will need to adapt, and this will not happen without market pressure. With 2024 we will start to step out from crude oil and natural gas industries. Nevertheless, our underwriting approach is designed to support existing clients during the period of transition. That means we will not step away from clients that have a clear plan to reduce the CO2 emissions according to the “science-based target” initiative plan. 

Spittau: We think that it is very important that risk carriers support their clients and accompany them in their transformation and do not immediately speak of a general exclusion policy. Can you tell us how UNIQA sees its role in driving forward the transformation of its customers in this area, and are there already things being implemented?

Rauter: Engagement is crucial for the transformation of the European economy. We engage with investors and customers, assessing and documenting their progress. Also, we plan to reward sustainable approaches with specific products. 

We even go one step further and integrate ESG-consulting and risk management of new sustainable journeys in our core business model: We are starting in 2024 with our dedicated ESG and risk experts as a vertical of UNIQA Group to support our corporate clients on their way to a greener and more sustainable future. We will communicate more in due time on this project.

Mitigating Risks in Green Energy Transformation

Spittau: What are the biggest risks and how do you prepare? A transformation to green energy presumably sometimes also involves a higher technical risk (e.g., fire hazard, hydrogen, and batteries, etc.)?

Rauter: Actually, the greatest risk is underestimating the need for change. Of course, with new technologies we face different risks. Our approach is to define the required risk standard which enables us to write exposed risks. The philosophy we have is to differentiate exposure and risk quality. Insurance of green energy requires further technical skills and proper assessment of the different risk components. Our ambition is that risk pricing is supported by deeper knowledge and the consequent engagement in these new technologies.

Anticipating Future Green Innovations

Spittau: Finally, I would be interested to know what innovations you expect in the not-too-distant future – “green techs” etc.?

Rauter: We expect progress within Europe in the fields of battery production, photovoltaics techniques, and Green Hydrogen. With all of this accompanied by digitalization and improved autonomy of European technical expertise.

We, as an insurer, are also forced, together with our broker partners, to support our clients more intensely with regards to climate change resilience, ESG correlated risk management, and decarbonization. No matter what role we must play.   

About Andreas Rauter
Andreas Rauter has been working in the insurance industry in various management positions since 2000. He studied at the Vienna University of Economics and Business Administration and began his career in 1989 at international consulting firms where the financial and non-financial reporting of listed companies kept him busy. In the insurance industry he was leading Group Finance at UNIQA for 15 years, before he turned into exploring future challenges for society and the insurance business. He currently heads the Sustainability, Ethics & Public Affairs department at UNIQA Insurance Group AG and focuses on shaping a holistic corporate management approach for meeting future European societal priorities.

About UNIQA Group
The UNIQA Group is one of the leading insurance companies in its core markets of Austria and Central and Eastern Europe (CEE). Around 21,000 employees and exclusive sales partners serve more than 16 million customers across 18 countries. UNIQA is the second largest insurance group in Austria with a market share of about 21 per cent. In the CEE growth region, UNIQA is present in 15 markets. In addition, insurance companies in Switzerland and Liechtenstein are also part of the UNIQA Group.

Andreas Rauter

Head of Sustainability, Ethics & Public Affairs

Paul Spittau

Head of Group Carrier Relations & Insurance Mediation

T +43 664 537 17 42

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ESG Rating and its Effects on Financing: Interview With Karin Lenhard

“At Erste Group, we have an ESG Office, a dedicated unit focused on sustainability. We are situated within the strategy department, and our main responsibility is to implement the entire regulatory framework of the EU Green Deal within the bank. ” – interview with Karin Lenhard from Erste Group.

In a recent interview with Karin Lenhard from Erste Group, Andreas Forster, Practice Leader Financial Institutions in Austria, gained valuable insights into the world of ESG (Environmental, Social, and Governance) ratings and its profound impact on the finance industry. The interview shed light on various aspects, from the role of Erste Group’s ESG Office to the challenges of balancing environmental and social responsibilities.

Erste Group, a member of the Net-Zero Banking Alliance, has set ambitious group goals, including achieving a “Net Zero” financing portfolio by 2050 and ensuring that at least 25% of new corporate client business qualifies as “Green Investment” by 2026. Green Investments go beyond mere environmental criteria; they signify that the economic activity significantly contributes to the ESG Taxonomy.

Forster: Let’s start by discussing your role at Erste Group.

Lenhard: At Erste Group, we have an ESG Office, a dedicated unit focused on sustainability. We are situated within the strategy department, and our main responsibility is to implement the entire regulatory framework of the EU Green Deal within the bank. This includes ESG in risk management, ESG in the business, and the development of group-wide sustainability strategies that apply to all our locations, from Dornbirn to Bucharest. The goal is to develop strategies that are suitable for the entire group.

ESG, Net Zero and green investments: short and longer term goals

Forster: What are the goals for Erste Group regarding ESG?

Lenhard: As a member of the Net-Zero Banking Alliance, our primary aim is to achieve a “Net Zero” financing portfolio by 2050. By 2026, we aim to ensure that at least 25% of our new business within the corporate client portfolio qualifies as “Green Investment.” It’s important to note that “Green Investment” differs from the “Green Asset Ratio” in that it stipulates that the economic activity makes a significant contribution to the taxonomy. In practice, we often face challenges due to the limited availability of data. We must verify taxonomy compliance. A substantial amount of the criteria can typically be met because they are relatively clear regarding climate protection, climate change adaptation, and CO2 values based on specific economic activities. However, the “do not cause significant harm” aspect is more complex because it implies that the activity should meet one taxonomy goal without significantly harming others. There are currently limited quantitative assessment mechanisms for factors such as biodiversity, recycling, waste management, and so forth.

The third step is the “Minimum Social Safeguard,” which includes minimum social standards and addresses issues related to labour rights and human rights, among other things. Interpretation in this regard is somewhat ambiguous, and for a bank, conducting precise evaluations can be challenging, particularly in the context of avoiding greenwashing. Therefore, we define “Green Investments” as those that, at a minimum, make a significant contribution to a taxonomy goal, whether it’s CO2 reduction or high energy efficiency. The “do not cause significant harm” and “Minimum Social Safeguard” aspects are evaluated at a high level due to the limited data available. As a result, our goal is to have a minimum percentage of “Green Investments” within our portfolios. For commercial clients, our target is 25% by 2026, and for private clients in the mortgage financing portfolio, our goal is to achieve 15% by 2027.

The art of persuasion: convincing clients to reduce their CO2 emissions

Forster: We are particularly interested in how you approach your customers and what impact this has on financing. How do you motivate customers to provide relevant information, and have these efforts already had an impact on financing decisions? Can you outline your roadmap for this?

Lenhard: Yes, we’ve already seen impacts. We are committing to achieving “Net Zero” for our Scope 1, 2, and 3 emissions by 2050 at the latest. A significant portion of Scope 3 emissions pertains to emissions financed. We calculate how many tonnes of CO2 are associated with our financing portfolio. We assess which economic activities we’ve financed and how many tonnes of CO2 are linked to them. This is always in terms of the CO2 equivalent, as it concerns greenhouse gases. We aim to quantify how many tonnes of CO2 can be attributed to a particular customer or transaction and then reduce this figure, depending on the economic activity. In our real estate portfolio, for instance, we need to develop a pathway that takes us to “Net Zero” by 2050. The same approach is taken for industries like steel, cement, oil and gas, heating systems in the energy sector, and so on. We need different strategies to ensure we become carbon neutral.

Forster: Especially in challenging sectors like oil, gas, and cement, how do you engage with customers in those cases?

Lenhard: Communication is key. The easiest solution would be to divest from customers in portfolios related to these sectors. While it might be beneficial for us, it doesn’t change the emissions produced by these businesses –  they will continue to exist. Hence, we strive to engage in dialogue with them and apply pressure, urging them to develop a decarbonization pathway. This means they should make maximum efforts to reduce their own CO2 footprint, which automatically decreases the tonnes of CO2 we finance. From a regulatory standpoint in financing applications, we’re obliged to include ESG factors. We assess whether customers and their economic activities pose climate or environmental risks and whether they have taken measures to mitigate those risks. This already affects conditions and is noticeable due to interest rate market developments. It’s integrated into the overall customer rating. Having a customer with higher risk, for example a ski lift operator, may negatively impact the terms. Eventually, we might question whether we can finance them at all.

Sweetening the pot: rewards for those taking positive action

Forster: So, ESG ratings are already factoring into conditions. Is this noticeable, particularly considering rising interest rates?

Lenhard: Yes, it’s noticeable. We’ve adopted a path of “green incentivisation”. This means that customers who choose to engage in activities compliant with the taxonomy or aim to reduce their CO2 footprint receive more favourable terms. In other words, they are rewarded for positive climate transformation behaviour.

Lightening the data entry load

Forster:  Let’s look at tools and reports, ESG data is in demand across multiple sectors. How can this data be integrated to streamline the process and prevent customers from repeatedly entering the same information?

Lenhard: When it comes to financing, each bank typically employs its own questionnaire, which may share some similarities but often varies in structure. In response to this, we collaborated with OeKB (Austrian Control Bank) last year to develop the ESG Data Hub. OeKB provides companies with a platform to upload their data for free. This service is available for companies of all sizes, but it’s especially relevant for larger corporations. Smaller and medium-sized enterprises, partly due to their size fall outside regulatory requirements, and so have not been a primary focus. They may be relieved about this, given the bureaucratic effort required, however, many of them are part of the supply chain for larger enterprises. If they don’t start working on their data, they risk losing significant contracts, potentially leading to an unsustainable business model or requiring them to relocate their business.

With the ESG Data Hub, we now have a standardised questionnaire. Business owners, depending on their size, can answer around 20, 40, or 120-140 questions at no cost. Customers have control over who they share their data with, in compliance with GDPR regulations. This data can be shared with us, the Erste Group, or any other party they choose. It’s important to note that all banks use the same questionnaire. To allow for benchmarking, companies can also share this information with their business partners, such as their auditors, tax consultants, or financial advisors. They can see how they rank in terms of ESG sustainability within their industry and size category. This offers insight into whether they are leading the way, in the middle, or need improvement.

The delicate ESG balancing act

Forster: How does this balance between E (Environmental), S (Social), and G (Governance) reflect within the bank? Could you provide insights into how each of these aspects is managed within the institution?

Lenhard: We talked a lot about E already. Alongside that, we have colleagues in Social Banking who are responsible for the S, focusing on initiatives like the second savings bank and various social projects. For instance, we run a group-wide project called “affordable housing,” aimed at providing affordable housing for the socially vulnerable. This initiative is mainly driven by Ceska Sporitelna and addresses the significant need for affordable social housing in Eastern Europe. Social aspects are also integrated into our workforce and managed within our HR department. This encompasses areas such as diversity and gender, workplace agreements, and whistleblower policies. We also consider factors like the number of employees with special needs, those with migrant backgrounds, or belonging to ethnic minorities.

The G in ESG stands for Governance, which involves regulatory compliance, competition law, antitrust regulations, compliance matters, and embargoes. We have established a robust framework for all three aspects.

In our financing process for larger clients, we assess ESG ratings. This involves evaluating how the E, S, and G components are separated and scrutinized by the major rating agencies. Essentially, we examine whether there have been incidents or issues in the past related to any of these three categories. If there were such incidents, we consider their severity, how long ago they occurred, and the reputation aspect. We also consider whether we want to be associated with a client who has had such incidents.

Forster: There’s a delicate balance between the environmental (E) and social (S) aspects of ESG, and a sense of social responsibility comes into play. How do you weigh these factors against each other?

Lenhard: Achieving environmental goals without considering the social aspects is not a viable approach. It simply doesn’t work that way. If we were to prioritise the climate, the best course of action might be to close a company like OMV. However, we must also consider the implications for all the employees and individuals who depend on such companies for their livelihoods. The transition to more sustainable practices must be orderly, inclusive, and considerate of everyone involved. But it should also be ambitious and implemented as quickly as possible. This is where the challenge lies.

The knock-on effects of high risk industries on internal ESG reporting

Forster: Is there a connection between internal ESG reporting and higher risk industries? How does the bank address this aspect?

Lenhard: Yes, we are already required to disclose this information as part of our Pillar 3 reporting obligations. It involves identifying which CO2-intensive sectors we have financed, as they are subject to transition risks. Activities that are highly CO2-intensive are at risk of being affected by future regulatory changes that could potentially prohibit their operation in their current form. Considering the long-term nature of some loans, this presents a certain level of probability where we must take corrective action. Therefore, when assessing new business, I will simply refrain from providing financing to clients who lack decarbonization plans. This is due to the increased risk associated with such clients.

On the other hand, I must explore how to mitigate this risk and reduce our carbon footprint. This often requires engaging with our clients to encourage them to transform their business models not only for new ventures but also to address climate change within their existing operations. This approach applies to various sectors. In Austria, we have some excellent examples in the steel and cement industries, with large companies already taking measures. However, some industries are nearing their limits and cannot further reduce emissions. For this reason, we made the decision to discontinue new coal financing. Coal financing carries a transition risk. Existing customers must present a plan by 2025 for their exit from the coal segment. Otherwise, measures will be enforced by 2030 to discontinue their financing with us.

Karin Lenhard

ESG Expert
Erste Group

Andreas Forster

Practice Leader Financial Institutions GrECo Austria

T +43 664 838 96 96

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Case Study: How One Georgian Bank Is Educating Its Clients Whilst Leading the Charge in Environmental Improvement

ProCredit Bank, compared to its competitors in Georgia, is leading the charge when it comes to reducing the Georgia’s environmental footprint.  Sophie Sosebashvili, Finance Control Manager at GrECo Georgia chats with Irine Kikvadze, who is responsible for energy efficiency at ProCredit Bank Georgia about the structure of their pioneering environmental policy and how it works.

Sosebashvili: ProCredit Bank Georgia has a unique environmental management system.  Please can you tell us more about it?

Kikvadze: We have created an environmental management system designed especially for financial institutions within the ProCredit group.  It is based on three core principles: improving the sustainability of resource consumption; managing social and environmental risks; and green finance.

Sosebashvili: Can we look at each in turn to determine more about each of them?

Kikvadze: Sure. Let’s start with pillar one: We are heavily invested in improving the sustainability of our resource consumption through our physical assets and beyond. We ensure our environment management system continually evolves to keep up with the ever-changing needs to protect to the planet. 

Let me give you some examples of what we are doing.  Our head office in Tbilisi was built using environmentally friendly and energy-efficient materials, such as special low-emissivity glass which minimises the amount of infrared and ultraviolet light that comes through the glass, without minimising the amount of light that enters the building.  We also used Rockwool insulation as a sustainable way to insulate the office.  In 2019 the bank installed a rainwater harvesting  system, which helps us to significantly save water, and in 2020 we installed solar panels on the roof of the headquarters. Nowadays 10/12% of the building’s electricity usage is supplied from our solar panels.  We have also invested heavily in our BMS (Building Management System), which regulates the heating, cooling, ventilation, and lighting systems at HQ – it’s been a gamechanger in improving our energy efficiency.  

We’re proud the building is often sited around the world as a noteworthy green building.  What is more, it is the first building in Georgia to have its resource efficiency confirmed with an internationally recognised EDGE certification.  EDGE stands for Excellence in Design for Greater Efficiencies, and the certification recognises buildings that have a reduced environmental impact through the reduction of direct energy consumption, the cutting back of water consumption, and the use of construction materials which minimise its energy footprint.  As a responsible lender, ProCredit has adopted EDGE for all its headquarters buildings around southeast and eastern Europe, and we are the first organisation in Europe to be awarded an EDGE Zero Carbon certification.

Sosebashvili: You mentioned earlier that it wasn’t just the bank’s physical assets which were included in this process.  What else is included?

Kikvadze: That’s right.  It’s no use having a super-efficient, resource-saving HQ if the staff don’t know about it.  All our staff at a local, regional, and international level are trained on environmental issues and we ensure they are aware of how we are reducing our resource consumption, and how they can contribute to that goal. We find it is a real eye-opener for many of them and has had a real impact in driving E&S messages across the organisation.

Sosebashvili: Let’s take a look at the second pillar.  ProCredit Bank is often heralded as the forerunner in the Georgian banking industry when it comes to managing social and environmental risks and the impact of lending.  What does this part of your event management system look like and how is it helping your clients improve their environmental awareness?

Kikvadze: ProCredit Bank on a group level has established standards for managing the environmental and social risk and impact of lending.  All credit applications are screened against the bank’s exclusion list.  All other projects or economic activities are discussed and assessed with regards to their environmental and social risk and according to their environmental risk categorisation.  Activities which have an irreversible impact on environmental and social issues appear on our institutions’ watch list.

By incorporating mitigation measures for E&S issues into the loan approval process, we have created an opportunity to communicate with our clients about their own environmental and sustainability reduction processes.  We are raising awareness of the need for our clients to continually evolve and better their own processes, and leading by example in the process whilst driving new business by showing them how we can help them to improve their environmental footprint.  

Sosebashvili: Green finance is a growing trend in the banking world.  What are you doing in this arena?

Kikvade: We strive to promote economic development that is as environmentally sustainable as possible.  The bank offers its clients financial services for investments in energy efficiency (EE), renewable energies (RE) and other environmentally friendly “green” (GR) projects. The aim of these activities is to decrease the negative impact of our clients’ business activities on the environment, and to use our green finance services and approach to increase public awareness and understanding of environmental protection. Our green finance share is growing year-on-year.  Currently  it is around 16% of the whole portfolio.

We also offer our customers a unique, one-of-a-kind opportunity to have a green account and a ProGreen bank card made of organic materials. 80% of the card is organic and only 20% is plastic – the minimum amount necessary for the card to work properly.  Moreover, the green account incorporates all major banking products at a flat rate.

The product is original in both its concept and the range of services it provides. It is an attractive offering for individuals who are enthusiastic in supporting green efforts and are committed to ecological and environmental sustainability. Customers who open a green account will participate in environmental activities planned by the bank, and the service fee goes towards environmental activities for which the bank allocates significant funds. To promote green investments, the bank also uses green accounts/deposits to fund environmentally friendly investments and we provide our customers with regular updates our various green initiatives.

Sosebashvili: How do you make sure all three pillars of your environment management system dovetail into one cohesive plan and run efficiently?

Kikvadze: We have an Environmental Management Unit, which is testament to the bank’s dedication to environmental and social responsibility. This unit is responsible for coordinating the activities related to the three pillars and for ensuring the proper implementation of the bank’s environmental policy. The Environmental Management Unit plays an important role in increasing the environmental awareness of staff, clients, and the public. The responsibility of the unit covers the development and implementation of the bank’s internal environmental management system – establishing the scope of environmental and social standards of lending and setting standards for the disbursement of “eco loans”.  It is also involved in the financing and supporting  of  Energy Efficiency, Renewable Energy and Environment Friendly investments.

Snapshot: Fast fashion needs environmentally forward-thinking fashion houses
The fashion industry, particularly the manufacture and use of apparel and footwear, is a significant driver of greenhouse gas emissions and plastic pollution. The rapid growth of fast fashion has led to around 80 billion items of clothing being consumed annually, with a large number going to landfill. 

Efforts have been made by some manufacturers, retailers, and consumers to promote sustainable fashion practices, such as reducing waste, and improving energy, water efficiency and using eco-friendly materials for their clothes and other fashion items.  One such manufacturer in Georgia is Materiel, a successor of one of the country’s oldest local apparel manufacturers, Fashion House Materia, whose roots date back to 1949.  The organisation was recognised as one of the leading regional companies for implementing industry innovation and international standards.  In 2014, Maia Gogiberidze rejuvenated the company direction and founded Materiel, and today it is still renowned as one of the most environmentally friendly companies in the Georgian fashion industry.

Based on the latest production data, over 96% of the fabrics used per collection are certified environmentally friendly and recycled. No animal-derived leather, fur, or feather is allowed for clothing production. No fabric is accepted until suppliers provide complete transparency with documents showcasing the fair treatment of animals, and the source of the material.

Attesting to this sustainable brilliance, Materiel now holds a plethora of certificates recognising their environmentally sound practices: Recycled Claim Standard, Organic Blended Contact Standard, SGS Certificate, Responsible Wool Standard, Global Organic Textile Standard, V-Label, European Flex, OEKO-TEX, and Global Recycled Standard.

Snapshot: Waste not want not – sustainable waste management solutions in the Georgian food industry
Agrohub LLC is a Georgian food retailer and organic food production company. It is the first vertically integrated retail company in Georgia to offer both domestic and imported organic groceries.  As part of this model the company itself produces several of the products on offer in its hypermarkets.  From its own milk processing plant, meat production enterprise, and bakery to a cannery, greenhouses, wine cellar, and poultry and livestock farms, Agrohub has control over the production of its offerings at every level.  Through the purchase of raw materials to the sales on the shop floor, the organisation’s  mission is to provide the highest quality foods to its customers as sustainably as possible. 

One major aspect attesting to their mission and their environmental credentials is their company-wide waste management plan which they introduced from the start and have implemented since their inauguration in 2016.  “Since day one, our waste management plan has clearly classified both solid and liquid waste and includes a technical report about out wastewater, air pollution, and harmful substances,” said Tamar Pruidze – Head of Production at Agrohub LLC.   We are immensely proud of our efforts to be as green and clean as we can in all that we do.”

Irine Kikvadze

ProCredit Bank Georgia

Sosebashvili Sophia

 Sophie Sosebashvili

Account Executive
GrECo Georgia

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Are Insurers Ready to Insure Organic Crops?

Organic farming is not only about healthy food, but also about using practices that make our agriculture sustainable and resistant to climate change for many generations to come. In this article, we take a closer look at the present and the future of organic farming, as well as the importance of crop insurance practices in helping with the transition to greener farming methods.

What is organic farming?

There are many explanations and definitions for organic agriculture, but all agree it is a practice that relies on ecosystem management rather than external agricultural inputs. It is a system that considers potential environmental and social impacts by eliminating the use of synthetic inputs, such as synthetic fertilizers and pesticides, veterinary drugs, genetically modified seeds and breeds, preservatives, additives, and irradiation. These are replaced with site-specific management practices that maintain and increase long-term soil fertility and prevent pests and diseases.

In general, the development of organic farming is driven by:

  • consumers: who are becoming more and more conscious about how their food is produced, processed, handled, and marketed.   
  • governments: aiming  to reduce groundwater pollution or create a more biologically diverse landscape.
  • farmers: who believe that conventional agriculture is unsustainable and have developed alternative modes of production to improve their family health, farm economies, self-reliance, and wealth (organic farming can also be much more beneficial, considering that prices for organic food are higher than those for conventional products). 

Organic Farming in the EU

TThe area under organic farming in the EU has increased by almost 66% in the last 10 years – from 8.3 million hectares in 2010 to 13.8 million hectares in 2019. It currently accounts for 8.5% of the EU’s total ‘utilised agricultural area’, but there is still lots of room for improvement.
A sustainable food system is at the heart of the European Green Deal. Under the Green Deal’s Farm to Fork strategy, the European Commission has set a target for at least 25% of the EU’s agricultural land to be organically farmed, and a significant increase in organic aquaculture by 2030. To achieve it the EU Commission has set out a comprehensive organic action plan. It is broken into three interlinked axes that reflect the structure of the food supply chain and the Green Deal’s sustainability objectives (Table 1).

Table 1. Summary of the action plan in the EU. Data source: https://agriculture.ec.europa.eu/farming/organic-farming/organic-action-plan_en

Is organic farming riskier than conventional farming?

Organic farming is often deemed as being more resilient to certain climate risks compared to conventional farming practices. USDA’s Risk Management Agency (RMA) recognises organic farming practices as good farming practices and continues to improve crop insurance coverage for certified organic producers and producers transitioning to certified organic production.

Organic farms tend to promote biodiversity by avoiding synthetic pesticides and encouraging the use of cover crops, crop rotation, and other practices that enhance ecological diversity. This diversity can make farms more resilient to changing weather patterns, as different crops have varying tolerance to climate conditions.  
In addition, there is a strong emphasis on soil health practices like composting and reduced tillage. Healthy soils can better retain water, which can be critical during periods of drought or irregular rainfall, helping to mitigate the impacts of climate change.  For example, during the very dry 2021 growing season, the farms in Canada with higher levels of soil organic matter produced an average of 8.2 more bushels of canola per acre than farms with lower levels of soil organic matter.  

Moreover, organic farming typically produces fewer greenhouse gas emissions compared to conventional farming, primarily due to the avoidance of synthetic fertilizers and pesticides. Therefore, it brings less exposure with regards to ESG transition risks.  

Insurance of organic farms

As a rule, insurance companies do offer insurance coverage specifically for organic crops. However, insurers and farmers face several problems related to crop insurance.  Organic farming can potentially lead to lower yields, due to the inability to use synthetic pesticides and fertilizers. It creates some controversy within classic crop insurance practices.  It is difficult to include more widely diversified organic farming in a crop insurance system that was largely built on insuring conventional types of field crops, and that largely defines success and failure in terms of crop yield and revenue. For organic farmers, by contrast, success also includes other values and goals, such as improving soil quality, increasing biodiversity, and enhancing the environment. In such a case, the level of insured yields is usually lower than for conventional farming.  For example, in the USA, if a farmer does not have an individual yield history for organic crops, they can be offered insurance for the area yield level for standard crops but reduced by 35%. 

Moreover, underwriters in insurance companies possess limited information regarding organic farming practices and how they are related to crop insurance.  Many agents of insurance companies do not know as much as they would like about organic production, and do not feel comfortable or well-prepared enough to work with organic growers. At the loss adjustment stage, the parties of the insurance contract may face the problem of interpreting good farming practices, violation of which is the reason for diminishing the insurance indemnity or even  decline in the compensation.  Clear cases of failure include things like using insufficient amounts of seed or fertilizer, grossly underwatering an irrigated crop, or allowing weeds to take over the field.  What this means is that insurance adjusters and outside experts decide if it is such a failure or not, and not the farmer.  However, there are many grey areas. The complexity and integrated nature of an organic production systems means it can be difficult for an adjuster to judge whether a given organic farm is using good farming practices, unless they are intimately familiar with the operation.

One more problem is that insurance companies usually experience higher loss ratios from insuring organic farmers compared to standard clients. It can be explained by the lower participation of organic agriculture in crop insurance, hence, a higher adverse risk selection. Moreover, growing a more diverse selection of crops can bring additional risk of failure depending on the variety, hence, more potential losses to the insurance company.   And finally, organic farms have a higher produce yield than conventional farms, and horticulture and viticulture is more vulnerable to climate risks compared to field crops, that makes insurers increasingly reluctant to insure it. In addition, it is difficult to verify sums insured based on market prices from liquid markets of conventional crops. Organic food is more expensive; therefore, an insurance company should consider the higher price of crops.  Instead, its verification is often just to follow the contract price between a farmer and their buyer. It means, that the exposure (maximal loss) per one hectare in organic farming can also be higher.       

Conclusions: can insurance lead the transformation of farming practices?

The EU has an ambitious target to have 25% of land under organic farming by 2030. This is a big challenge for farmers who, despite economic and social motivation, and growing consumer demand, are struggling with difficulties in the transition phase. Insurance plays one of the most important roles in motivating farmers to switch from conventional methods to more environmentally friendly ones. Insurers are ready to insure organic crops but should continue to develop their expertise to ultimately ensure that organic farmers have the same access to crop insurance, on equal terms to conventional farmers. For this purpose, several methodological, educational and data availability problems need to be solved.

GrECo Group, as one of the leading specialist brokers in the CEE/SEE region, facilitates the development of solutions for organic farming by conducting crucial research in this area and creating tailor-made solutions for the insurance and agricultural industries.  We firmly believe insurance can play a major role in the transformation of agriculture from conventional practices to more ecological ones.  We just need to provide the farmers with the right incentives and solutions.

Maksym Shylov

Group Practice Leader
Food & Agriculture

T +48 22 39 33 211

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From Yellow to Green: The Austrian Post Service’s Mobility Transformation

Despite Austrians receiving more and more parcels every year, by converting its fleet, Austrian Post AG is still managing to reduce its emissions.  Daniel-Sebastian Mühlbach, Head of CSR & Environmental Management, and Paul Janacek, Head of Group Vehicle Fleet at Austrian Post tell us how.

Striving to Meet Ambitious Climate Targets to Increase Energy Efficiency.

Due to the increasing importance of sustainability and the company’s integrated corporate and sustainability strategy, Austrian Post is more and more incorporating ESG into its risk management strategy, as well as the requirements of NaDiVeG (the sustainability and diversity improvement act), EU taxonomy regulation, and the necessities set out by the TCFD (the task force for climate related financial disclosures). As such, this approach identifies risks and opportunities arising from sustainability and the climate crisis at an early stage, so that the strategic orientation of the company and the achievement of corporate goals can be supported by appropriate measures.

To minimise the impact of climate change risks, we have been setting ourselves ambitious climate targets for more than a decade to successively increase our energy efficiency.  Since 2017, we have been submitting a science-based climate target of limiting global warming to 2°c to the science-based targets initiative.  At the beginning of 2022 we amended this submission by committing to a new 1.5°c CO2 reduction target by 2030, and net zero 2040.  We are thus pledging ourselves to the targets of UNFCCC’s Paris Agreement.

Green and Efficient Mobility

For Austrian Post, the transport sector is the biggest lever for avoiding and reducing CO2 emissions. Every year, our delivery staff deliver around five billion items to about 4.8 million private households and companies in Austria. On their delivery routes, they circle the globe several times – on foot and by bicycle, but also by moped, car and truck. We are therefore working hard to make our transport as environmentally friendly as possible.

Every day, Austrian Post uses thousands of vehicles, so when it comes to buying new ones, our focus is very much on how environmentally friendly they are:  since spring 2022, we have only purchased e-vehicles to deliver the post in Austria.

Use of Alternative Drives: Achievements to Shout About

But we’re not stopping there, we have set ourselves a clear ecological goal: By 2030, the entire delivery of all letters, parcels, advertising mail, and print media in Austria will be carried out by electric vehicles or by emission-free means.  We are being supported in achieving this by various public funding programmes.  At present, the share of electric vehicles in delivery at Austrian Post already exceeds 30 per cent and is being successively increased.  We currently have 3,039 e-vehicles, including 1,183 single-track and special vehicles (quads and trikes), and 1,856 e-cars.  This makes us the largest e-fleet operator in Austria. In the Post Group, 3,121 electric vehicles were in use in 2022.

Since autumn 2021, in the provincial capital of Graz, all letter and parcel deliveries have been emission-free. Here, we have completely dispensed with fossil fuels. No more conventional mopeds or cars are used, only muscle power and electrical energy.  To achieve this goal, we have put more than 100 new e-vehicles and e-charging stations into operation.  E-package transporters with correspondingly large loading volumes are also being used for the first time.

In 2023 and 2024, respectively, the provincial capitals of Innsbruck and Salzburg are also scheduled for conversion to emission-free delivery.  This will require another 200 or so e-vehicles and charging facilities. In Vienna, the go-ahead for emission-free parcel delivery has already been given – by the end of 2022, we had 50 e-parcel transporters in operation. In total, more than 1,000 electric delivery vehicles will be procured in 2023.

Many are probably wondering where the electricity supply comes from for such a large e-fleet.  The simple answer is, we either generate the electrical energy required to operate the e-vehicles ourselves through photovoltaic systems, or we exclusively purchase green electricity from Austria.

Fleet Optimisation in Freight Transport

The rejuvenation of the vehicle fleet and the use of modern technologies have been a focus for quite some time – with regards to freight transport, Austrian Post has done a lot in recent years to protect the environment and the climate.  The entire transport logistics fleet is equipped with the most modern EURO-6 emissions technology available on the market. In 2022, 13 new trucks with engines which are extremely efficient and low in pollutants were purchased.  The interaction of highly effective catalytic converters, the additive AdBlue, and closed particulate filters reduces their emission of soot particles and fine dust from the engine.

To encourage our hauliers to use a modern and environmentally friendly fleet, we have adjusted our remuneration accordingly. For example, we only pay the tolls incurred for road use to the extent of the best possible emission category and thus motivate them to use modern truck fleets.

New Technologies in Test Operation

In 2020, as a test, we installed for the first-time solar panels on three trucks in our fleet.  In 2021, two more solar panels were fixed on trucks with a chassis for swap bodies. The energy generated is fed into the vehicle battery, reducing fuel consumption, and lowering CO2 emissions.  For the future, we are looking at other systems from alternative suppliers to finding an even more efficient system.  Since 2021, we have been operating our first liquefied natural gas (LNG) truck. In partnership with the CNL (the Council for Sustainable Logistics), we have also been exploring other avenues. We used an electrically powered truck in a one-month test on a route driven several times a day in Vienna.  This test provided valuable insights for the future use of e-trucks. We already have six trucks in our fleet operating with Hydrotreated Vegetable Oils (HVO). This is a renewable fuel that can be produced from waste, fats, vegetable residues, and vegetable oils. What makes this even better is that HVO can be used in diesel engines without technical conversion and according to the manufacturer, up to 90 percent of CO2 emissions can be saved over the product’s life cycle compared to diesel. 

During the three months from July to September 2023, we deployed three HVO-fuelled Post trucks in each of the Vienna and Graz metropolitan areas.  The vehicles were used on daily postal routes between logistics centres, delivery bases, and post offices and transported parcels, advertising mail, letters, and print media. During the test period, we determined the driving characteristics, fuel consumption, and the actual achievable CO2 savings.  The trucks were refuelled in Graz and Vienna with fuel from Eni Sustainable Mobility and Biofuel Express at filling stations with their own HVO dispensers.

The HVO fuel used by Austrian Post is subject to the European Renewable Energy Directive (RED II). It aims to ensure that biofuels have no negative impact on food production, the environment or social sustainability.   

Outlook: Alternative Drives in Austrian Post’s Transport Logistics.

In 2020 and 2021, we signed letters of intent with OMV and Wien Energie for the use of green hydrogen in heavy-duty transport: an important milestone for climate protection.  The focus is on the procurement of green hydrogen, the development of the necessary infrastructure, and the integration of fuel cell trucks into our fleet.  In addition, Austrian Post is represented nationally in various initiatives and other consortia in the field of hydrogen through Transport Logistics. Together with the Austrian Federal Economic Chamber, various ministries, and other renowned national and international companies from the fields of industry, energy, freight forwarding, and logistics, we are focusing our attention on sustainable and environmentally friendly change in heavy goods transport through alternative drive systems and synthetic fuels (e-fuels). 

On the way to emission-free heavy goods transport, Austrian Post would like to bring further future technologies onto domestic roads and test them as quickly as possible.  Within the framework of the “Emission-free Commercial Vehicles and Infrastructure (ENIN)” funding programme of the European Union, the Federal Ministry for Climate Protection, Environment, Energy, Mobility, Innovation and Technology, and the Austrian Research Promotion Agency (FFG), Austrian Post has therefore submitted and received funding applications for a total of four emission-free trucks.

The first funding submission involves the testing of two e-trucks. These are to replace two diesel trucks that currently commute around the clock seven days a week between the logistics centre in Vienna-Inzersdorf and Vienna-Schwechat Airport. A dedicated fast-charging station will be installed on the logistics centre’s premises so that the vehicles can be back on the road quickly. Depending on the funding decision and the delivery time of the vehicles, Austrian Post expects the vehicles to be in use in the second quarter of 2024.

The focus of the second funding submission is the testing of two hydrogen trucks. The route planning is done along roads with existing green hydrogen filling stations, which are currently available in Tyrol and Vienna. Further green hydrogen filling stations are already being planned and will soon cover all the main traffic routes in the country. With an expected range of around 400 kilometres per refuelling, and the existing filling stations, the hydrogen trucks can be used on all postal routes throughout Austria. Due to the long delivery times and the currently still scarce supply of green hydrogen, the first two postal hydrogen trucks are expected to be deployed by the end of 2024.

About the Authors:

Daniel-Sebastian Mühlbach
Head of CSR & Environmental Management, Österreichische Post AG
Daniel-Sebastian studied at the University of Natural Resources and Applied Life Sciences in Vienna, followed by a course in environmental management and ecotoxicology at the University of Applied Sciences Technikum Wien. He started as a Sustainability Consultant at thinkstep, with later positions at PostEurop and ISA Lille. He has been working for Österreichische Post AG since 2013 and, as Head of CSR and Environmental Management, is responsible for the sustainability activities of the entire Group.

Paul Janacek
Head of Group Vehicle Fleet, Österreichische Post AG
Paul was educated at the Rotterdam School of Management. He started his career at T-Mobile Austria in the finance and audit department, before moving to Group Customer Finance at Deutsche Telekom AG. Since 2015, Paul has been working at Österreichische Post AG, where he is head of the Group fleet responsible for over 10,000 vehicles and is in charge of the conversion to e-mobility.


Daniel-Sebastian Mühlbach

Head of CSR & Environmental Management, Austrian Post AG

Jürgen Spari

Paul Janacek

Head of Group Vehicle Fleet, Austrian Post AG

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What Is in a Standard Commercial Crime Policy? Contractual Requirement For Insurance

Do traditional Crime policies actually cover the risk that is understood under the contract? What are the risks for a client in buying off the shelf policies to meet the contractual requirements?

When speaking to our clients (contractors) who are working with organizations from countries such as USA, UK and Germany we are seeing more and more requests within the contract for Crime Insurance alongside the usual Professional Indemnity and General Third Party Liability insurances. Do traditional Crime policies actually cover the risk that is understood under the contract? What are the risks for a client in buying off the shelf policies to meet the contractual requirements?

What cover is implied by the contract?

Whilst the wording of the contract clauses is usually broad in its intent, we can infer that that the main purpose of the requirement is that if a member of staff of the contractor steals from the main organization then the organization will expect the contractor’s insurance to pay for the damage to the organization. It seems to be a pretty clear requirement and not particularly onerous, but how can it be covered?

What is in a Standard Commercial Crime Policy?

Traditionally a crime policy is for the protection of a client’s own assets, they are specifically set up to protect against a direct financial loss to the client due to the actions of both their employees and third parties. The cover can be broad in terms of protection of the client’s own assets (direct financial loss) but when it comes to actions against a third party then it becomes a more difficult proposition.
Typically Direct Financial Loss is not defined within the policy, but is an understood legal term for the loss of a clients own cash, securities and tangible property. So, in the case of an employee stealing from a client then we are in an area which is not covered under the main clauses of the policy.

What options are available?

In older crime policies there is no cover as required under the contract so they are not really useful, unless the client has large assets or holds large amounts of cash. In this case we need to ensure the cover is fit for purpose and not just a box ticking exercise as crime is a very expensive insurance in comparison to the other covers typically requested.
In more modern Crime polices there will usually be an optional extension for liability to a client. This will provide the cover needed under the contract but must be requested and checked to ensure it has no exclusionary language for territory or actions of the client. This extension will also typically exclude any actions which are in collusion with the organization’s staff which could lead to insurers trying to pass on the liability to the organization which could cause embarrassment for the client.
A neat way of creating the cover is to add the liability to the Professional Liability through a Dishonesty of Employees Extension. This is a clause designed to bridge the gap between the PI and Crime policies for the acts described above due to the Crime being designed to cover Direct Financial Loss (being akin to a property policy really) and not for legal liability. The clause gives cover to –
indemnify the Assured against all sums which the Assured shall become legally liable to pay as a result of any Claim or Claims made against the Assured during the Period of Insurance brought about or contributed to by any dishonest, fraudulent, criminal or malicious act or omission of any employee of the Assured.’
This would fit the presumption of the contract, albeit not providing the cover for the client’s own assets.

What difference does it make as to which is chosen?

Generally the main difference is that the cover given in the Professional Indemnity is a better fit for the client as it covers the implied contractual requirement most closely. The Crime work around does give good cover but does leave it more open to disputes where there is collusion.
The costs associated with the two options mean that where the crime can be incorporated into the Professional Indemnity these will be reduced significantly. Crime cover is typically the most expensive per million out of the standard contractual insurances, sometimes adding half the cost in total. Professional indemnity insurers will seek to charge for the extension, but not to the same level as a full crime policy. It is also usual for the crime deductible (franchise) to be higher than the Professional Indemnity as well.

Are there any other reasons for Crime Insurance being requested?

Sometimes the Crime cover is requested as a fall back in case a large fraud at the contractor causes them to cease trading. Contractors in the main are smaller than the organizations that they are working with and so have more exposure to shocks such as large internal frauds. In the case of a loss of $ 1.000.000 a lot of contractors would find it difficult to continue to pay wages, costs and taxes which could lead to a failure of the contract as people leave and / or the company is forced into receivership. The clause is thus to protect the organization from shocks to the contractor in this case.
It is therefore important to understand what the contract is seeking as there can be major reasons for a full Crime policy, but in the main the organization is seeking to protect itself from theft by staff of the contractor having access to their systems / premises.


The main takeaway is that we need to understand what is being sought by the organization in the contract. If it is merely to ensure they are protected from theft when giving access or through products bought (software for example) then we can look to provide cover which does this through a Professional Indemnity policy. If it is more for a catastrophic loss and inability to trade then we probably still need the Crime insurance as well.
It has been more and more standard in Professional Indemnity for Tech firms to include the Dishonesty Extension due to these requirements so a strong Tech Professional Indemnity policy tends to be sufficient for Tech contracts. For other professions it is more optional, but still usually available on the market.
I would note that the most common claims we see from Central and Eastern Europe are crime claims so it is always important to cover this area when a company gains critical mass, but for small entities needing insurance for contractual purposes then these work arounds can save money.

Brian Alexander

Group Practice Leader Financial Institutions

T +43 664 962 39 17

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Our Role Is to Help Our Clients Navigate the Ever-Changing World: Interview With Pawel Kowalewski

“Our role is to help our current and future clients navigate the ever-changing world, transform their business to reflect evolving conditions and have the management focus on taking advantage of resulting new opportunities and creating value for their clients and shareholders”interview with Pawel Kowalewski, our new Group Practice Leader Energy, Power and Mining.

Could you tell us a bit more about your new position at GrECo? What will be the main area of your focus?

Kowalewski: It is not so much a new position as it is a new responsibility.  Although I was primarily involved in GrECo’s power accounts, I was also contributing to the group effort in the field of energy and mining.  These three areas are in many ways interconnected and complementary and in many instances it is difficult to tell one from the other.  Therefore, I will be focusing on developing the combined portfolio of GrECo’s business to make sure we can offer our clients risk management solutions that will help them deliver world-class products and services that literally get the world moving.

What are some of the biggest challenges in the area of energy and renewables?

Kowalewski: From the risk management perspective, these are increasing complexity and volatility across many dimensions. Ever bigger and more complicated machinery, rapidly changing commodities pricing, global inflation and fragile supply chains. Exciting new technologies bring about limitless promises but also new known and unknown challenges and risks. If you add an increase in the frequency and severity of natural catastrophe events and climate change you get the picture of the new reality where the optimization of risk management processes rapidly becomes key to success for our clients – and for ourselves.

What can clients in the energy sector expect when they do business with GrECo?

Kowalewski: We have been building our success story on a thorough understanding of our clients’ unique risk landscapes which allows us to create and market bespoke solutions. This almost means becoming a part of our client’s risk management teams. Ideally, we would be involved in discussions about new projects or initiatives early to provide clients with feedback, guidance and training that address potential issues early in the process and help avoid pitfalls. We have demonstrated to our clients that they always can expect from us the highest standards of delivery and no risk is too difficult or too complex for us to place. Speaking of delivery, we tend to take a realistic approach leveraging our understanding of current market conditions and to overachieve rather than overpromise.

How do new ESG requirements affect the field of energy and renewables?

Kowalewski: Not only does it affect Energy, Power and Mining, but first and foremost it affects our clients. In the Environmental dimension, it means the electrification of the economy, which means the gradual transition from primary energy sources such as fossil fuels into electric energy propelling ever larger swatches of the economy. To generate and deliver requisite electricity we will need many more power stations as well as transmission and distribution lines than we have today and to build those we need to extract, process and deliver large quantities of raw materials and products around the globe. The world as we know it will change at a rapid pace and central to ensuring successful transition is good risk management.

We cannot also forget about the Social dimension – ensuring that the entire world population, not only the rich and the mighty – have access to affordable energy which in today’s world is one of human rights. Finally, the Governance aspect of ESG makes us focus on compliance and integrity as core values of the GrECo team.

Our role is to help our current and future clients navigate the ever-changing world, transform their business to reflect evolving conditions and have the management focus on taking advantage of resulting new opportunities and creating value for their clients and shareholders.

What made you choose to become a part of the GrECo in the first place? 

Kowalewski: As a former client, I liked the no-nonsense approach and found a common language with the EPM team and GrECo management. I found GrECo to be a very strong regional player, having a large footprint and resources requisite to provide risk management services to even the largest companies in our part of the world, yet being able to focus on individual client needs and go the extra mile to deliver the promised result.

Could you tell us a bit more about yourself outside of work? How do you like to spend your free time?

Kowalewski: AI try to leave in the office all the exciting things that the EPM team deals with every day and not take them home. Outside of working hours, I try to enjoy all the simple yet thoroughly wonderful things in life such as spending quality time with my family and friends or reading a good book.

Pawel Kowalewski

Group Practice Leader Energy, Power and Mining

T +48 507 085 066

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The Insurance Industry in a Digital Race to Catch Up

The digitalisation journey for insurance companies began in the early 2000s, but it has only really taken off in the last decade.

The traditional insurance industry – except for leading reinsurers – has been slow to adopt modern technologies, but increasing competition from tech start-ups, rapid changes in the risk landscape, and changing customer expectations have driven digital transformation in recent years.

In the early 2000s, insurance companies began experimenting with digital technologies such as online customer portals and e-commerce platforms. These early efforts focused mainly on providing basic online services to customers. However, today’s landscape has drastically changed, and digital technology plays a crucial role in increasing risk transparency and speeding up processes. It can be used to automate many tasks, such as claims handling and also underwriting, i.e. risk evaluation and setting the essential parameters in risk transfer.  Artificial intelligence (AI) and machine learning can analyse data, recognise patterns, and form predictions, enabling insurers to make faster and more informed decisions.

Can ChatGPT & Co. be co-pilots in claims analysis?

Ericson Chan, Zurich’s Chief Information and Digital Officer, confirmed in an interview with the Financial Times that his insurance group is currently investigating the use of AI technology.  For example, they have been using AI to extract data from claims descriptions and other documents whereby several years of claims data has been fed into ChatGPT to specifically analyse the causes of damage in order to make derivations for risk assessment.
In some cases, however, existing organisational structures and processes are still hindering the industry’s technological developments and monetisation of data. Insurers are still traditionally using statistical evidence from the past to build predictive models for the future. This approach is becoming increasingly flawed and outdated due to the rapidly changing environment and technological breakthroughs.

Can we equip against climate risks with digital tools?

Various reinsurers and primary insurers are breaking new ground in the digitalisation of climate risks. Their digital solutions for natural catastrophe and climate risks are not only modelled for today with different climate scenarios, but also for the coming decades. You can read more about this in Swiss Re’s article “The challenge of the climate crisis”.

No matter how digitisation is affecting different insurance industry sectors, the latest technological developments allow us to conclude that, as the insurance industry races to catch up digitally, it will also discover further new business models and processes for the benefit of its customers.

Zviadi Vardosanidze

General Manager GrECo Specialty

T +43 664 962 39 04

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Breaking Through the Limits

Many consignees have tried to find a way around this weight limit restriction, but only a few have ever succeeded. So, what’s needed to overcome it? One thing’s for sure, it’s a lot more than simply playing the gross negligence roulette wheel!

There are eight chapters and 51 articles in the Convention on the Contract for the International Carriage of Goods by Road, better known as CMR. You may not have read a single one of them, but if the word “logistics” sounds familiar to you, you should have at least heard of the infamous 8.33 SDR/KG weight limit. It’s the nemesis of every shipper, and the salvation of every trucker who has had an accident. Many consignees have tried to find a way around this weight limit restriction, but only a few have ever succeeded. So, what’s needed to overcome it? One thing’s for sure, it’s a lot more than simply playing the gross negligence roulette wheel!

The usual approach to overcoming the infamous 8.33 SDR/KG weight limit

The hauler`s 8.33 SDR/kg liability limit for damaged or lost shipment is one of the cornerstones of the CMR convention.  Many who have tried to circumvent it have been tempted to increase the limit through a separate agreement with a carrier.  However, ruthless article no. 41.1, which states: “any stipulation which would directly or indirectly derogate from the provisions of this Convention shall be null and void”, has quickly put a stop to any such plans.  You may have spotted that CMR allows a shipper and a hauler to reach an agreement about a separate limit.  As stated in article no. 26.1: “higher compensation may only be claimed where the value of the goods or a special interest in delivery has been declared in accordance with articles 24 and 26”. Both articles 24 and 26 follow the same phrasing – higher compensation can be granted “against payment of a surcharge to be agreed upon”.  Sounds simple enough, doesn’t it?  But sadly, no! There are two pitfalls here for shippers seeking greater compensation than the stipulated limit.  Firstly, the value of the goods must be declared in a consignment note, and secondly, a surcharge payment must be agreed between the shipper and the carrier.  We’ll look at each in turn.

Declaring the value

“It has been established in the CMR convention article 24, that the shipper might declare that the cargo value exceeds the limits described in article 23.3, if the agreed fee has been paid and that sum changes the before mentioned limit” E2-8562-587/2018, Supreme Court of Lithuania

This doesn’t mean you must spend a fortune with a trucker to overcome the weight limit. Far from it.  The CMR convention simply says that a payment of a surcharge must be agreed. The Supreme court of Lithuania’s case no. e3K-3-123-219/2017 provides a good example of what can be achieved: A freight forwarder agreed in a transport order with a hauler that “a payment surcharge, which increases the hauler`s limit described in CMR article 23.3 up to the cargo value, is included in the freight fee (20% of freight fee)”. This example is based on Lithuanian law but provides flexibility for freight forwarders to be able to rely on a relative amount as payment of the surcharge.

You might be willing to reveal the actual value of the goods in your transport order, or you might prefer to simply state that “the hauler confirms that it is familiar with the market value of the goods. If the carrier doesn’t know the expected market value of the consignment, it must inform the customer.” But to tell you the truth, the latter is probably too little to secure your or your customer’s, interests.

Article 24 in the CMR convention is straightforward.  A shipper can “declare in the consignment note a value for the goods exceeding the limit laid down in article 23.3”. If we follow this article word-for-word, then the value must be properly declared on the waybill.  The same principle is held in the Vienna Convention on the Law of Treaties 1969, article 31, which states that it’s required that the ‘ordinary meaning’ be given to the terms of the treaty, although assistance can be sought from the travaux préparatoires, if the ordinary meaning is unclear, or if it leads to an absurd result.

Although, a very recent decision by the German Federal Court (Judgment of the German Federal Court of Justice of 17.12.2020, I ZR 130/19) has highlighted the significance of the value of the declaration on the consignment note.  They took a literal interpretation of CMR’s articles 24 and 26 and decreed there was no mutual agreement between the sides due to a lack of declaration of “special interest” in the CMR waybill. Even though this decision is not legally binding in other countries, it acts as a persuasive authority for many.

On the other hand, however, English courts have distanced themselves from this approach and have adopted a “purposive” attitude when interpreting these CMR articles. The same tack was taken by The Supreme court of Lithuania. In the previously mentioned case, the freight forwarder declared the goods value in the transport order and consignment note which accompanied the cargo invoice. That has been deemed enough to evidence the declaration of value.

An alternative approach: full cargo insurance

If declaring the value of goods sounds confusing, there is a second option which is trending among European shippers. The declared value of the cargo is being increasingly replaced by the requirement for the hauler to purchase full cargo insurance. One such example can be seen in the finished vehicles logistics industry: “Lower limitations of liability set by mandatory transport law do not dismiss the Carrier of its obligation to take out a cargo carriage insurance for the full actual loss or damage to the cargo”.

The duties of the freight forwarder are listed in the Civil Code of the Lithuanian Republic. Article 6.824 tells us that a freight forwarder is accountable for organizing delivery of freight, signing transport orders, and other contracts ensuring loading and unloading and carrying out other duties related to freight transport. There is no obligation to take out cargo insurance for the freight forwarder. The list is not exhaustive, and an insurance policy can be interpreted as one of the other documents which freight forwarders can sign on behalf of their customers (this legislation might differ from EU country to country).

CMR does not preclude an agreement about provisions undiscussed in the convention. The convention does not stipulate the trucker’s duty to take out cargo insurance upon receipt of instruction. If you follow this path, you must remain clear and precise about your intentions. The Court of Appeal of Lithuania has advised (2A-437-117/2015) that the “cargo value must be fully covered by the haulers insurance” is not sufficient to establish the carrier`s duty to purchase separate cargo insurance.

However, there are as many “ifs” in this approach as there are positives. If the hauler is instructed to take out cargo insurance and fails to do so, you might be able to claim for any losses through failure to fulfil obligations. The claim would be based on Civil Code rather than the CMR convention since the liability arises from failure to fulfil obligations other than haulage. Furthermore, your transport order must be clear about the consequences to the carrier for failure to take out cargo insurance. In addition to that, a simple paragraph in the transport order might not be enough, as you might have to prove that you were interested in having cargo insurance by requesting a policy or inquiring about the premium.

So, what’s the answer?  How do you overcome the CMR weight limit dilemma?

All in all, one could conclude it is best to complement your transport order by adding in one of the following articles to your agreement: were interested in having cargo insurance by requesting a policy or inquiring about the premium.

  • The carrier is liable for the damaged or lost cargo in accordance with article 24 and 26.1 of the CMR Convention.
  • The carrier agrees and understands that the 20% surcharge included in the freight fee represents the risk that its liability is increased up to the cargo value, which may exceed the amount calculated in accordance with the formula number of kilograms of cargo weight x SDR rate for the day of loading x 8.33 (kg x SDR x 8.33).
  • The above-mentioned risk premium is already included in the estimated freight fee.
  • If a hauler`s liability insurance (sum insured and/or weight limit x weight) is lower than value of the cargo, the hauler agrees to take out separate all risk cargo insurance policy for the shipment. If the hauler fails to fulfil this obligation, it would be liable for any losses as if the cargo insurance had been taken.

As in any good pharmaceutical commercial, you must understand that there might be side effects when implementing any of the above articles, and you should seek advice from your lawyers before commencing any changes.

It should also be noted that it’s a rare occasion when a hauler takes out separate cargo insurance, and it’s even rarer when a carrier has cargo liability insurance which addresses declared value. Although, it’s an open secret that most truckers don’t bother to read transport orders.

Our suggestions mean walking a thin line. The hauler`s liability insurance is unlikely to recognize them, and you will have to defend your interests in court. It’s always best to advise your customer to take out independent cargo insurance or through their freight forwarder, rather than relying on tricking the hauler into signing an excessive transport order.

Gediminas Dauksa GrECo

Gediminas Dauksa

Group Practice Leader Transportation & Logistics

T +370 616 08451

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How Logistics Insurers Are Turning a Blind Eye to the Laws

You need to do your homework before you take out cargo insurance when transporting goods outside the EU. Ask yourself, is your insurer selling you the right policy to ensure all your liabilities are covered at every stage of your shipment’s journey.

” As soon as a law has been duly proclaimed, no one can excuse himself by not knowing it.” – Austrian General Civil Code (ABGB) article no. 2.

This principle is built into the civil law of every democratic country and insurance services are no exception to the rule, no matter which country you are in. Yet many insurers in Eastern Europe are confident that they can turn a blind eye to the laws just because logistics insurance products are less popular than say MTPL. The question for the industry is therefore, how much can you trust that those same insurers will comply with the law in the case of a loss?

One of the most valuable things about the EU is that its open borders policy allows for the free movement of goods and services within its nations, eliminating discrimination on the grounds of nationality. The insurance market has capitalized on the opportunity by abolishing borders in favour of the convenience to be able to grant insurance coverage in different regions. For example, a logistics company with a head office in a Baltic country can obtain an offer from e.g., Lloyd`s Europe, or seek to include their subsidiaries in other EU countries under one single policy as co-assureds. Many local insurers have taken this a step further and extended the freedom of services principles to insure risks in non-EU countries, even if that doesn’t comply with the laws of those nations. There is a saying: a good example is worth a million words. So, let’s get hypothetical.

Scenario #1: validity of cargo insurance when transporting goods outside the EU and EFTA

Imagine, you are running a logistics company in Warsaw and have subsidiaries in the United Kingdom and Kazakhstan. You take your responsibilities seriously and purchase cargo liability insurance through a local insurer who offers to include your offices in London and Nur-Sultan as co-assureds in the same policy. Does the local insurer have the right to insure risks in United Kingdom and Kazakhstan?  The simple answer is no.  The principle of freedom to provide services in other countries applies only to EU nations. Neither the United Kingdom nor Kazakhstan are members of the EU.  Nor are they members of the EFTA like Norway, Denmark, Iceland, and Liechtenstein who can, through a separate agreement with the EU, also enjoy the benefits of freedom to provide services. Not even under the WTO general trade and services agreement can your local insurance company truly provide you with the cover necessary to insure all your risks in these non-EU or EFTA countries. The WTO GATS loophole, which many local insurers have been using, allows non-resident suppliers of financial services to supply, in principle, the insurance of risks relating to the transportation of goods, providing a limited range of services in other WTO member countries provided they follow the host’s (insurer`s) national laws. 

In our imaginary scenario, this isn’t going to wash in Poland because under local law the policy will only stand if the insurer establishes an office in the countries outside the EU/EFTA, in this instance the UK and Kazakhstan.  Let’s face it, that is unlikely to happen.  So, the reality is many local insurers act anyway, outside the regulations, reasoning that they are insuring the interests of the shareholder who is based in the EU.  Sadly, insurance policies which describe the interest of the shareholder as an object of insurance are an exception to the rule. The more common straightforward approach would be to include the United Kingdom and Kazakhstan companies as co-assured, meaning the liability of the co-assured (not shareholder) in the United Kingdom and Kazakhstan is insured. Essentially what that means is your goods are not properly insured against all risks and liabilities.

Scenario #2: transportation from Gdansk to Ghana

Let`s look at another scenario. You are acting as a freight forwarder. Your task is to ship a container full of Polish products from Gdansk port to Ghana. The shipment will travel in accordance with either EXW or CIF terms. You book cargo insurance with your local insurer. Is the Polish insurer eligible to insure such a shipment?

First things first, we must identify whose property interest would be insured as per the cargo insurance policy.  With EXW, the risk or liability for the goods transfers from the seller to the buyer as soon as the goods are made available at the named destination. In this case, the risk rests with the buyer in Ghana.  With CIF, the risk is transferred as soon as the goods are loaded onto the ship in Poland, meaning the seller is obliged to insure the goods, but the risk and interest lies with the buyer before the goods have left the country of origin.

In the transit of goods from Poland to Ghana there is very little to no EU country involvement, so how does an EU insurance policy apply?  In short, it doesn’t.  The insurer might argue that they are insuring the interests of the freight forwarder, defined by its liability.  These are governed by the Hague Visby rules which state that a maximum of 50,000 EUR liability (for a container weight load of 20 tons) is allowed. If the sum insured is higher, the Ghana based consignee`s interest would subsequently be insured by the Polish insurer who is seen as a non-admitted insurer in Ghana.

The good news is that most nations allow non-admitted insurers to insure goods in transit. The bad news is that there are a considerable number of countries which restrict such insurance, and it’s worth finding out which ones they are before you ship your goods!  For example, Ghanaian regulations state that marine cargo insurance of imports, not including personal effects, must be insured by a local Ghanaian insurance company.

The long and the short of it is the fact that there are no EU interests in this shipment and that Ghanaian law does not allow cargo insurance for imports outside of Ghana, matters not a jot to the local insurer who will still proudly issue your cargo insurance policy, and will also accept no responsibility if you ever have to make a claim.

What’s the solution?

In conclusion, you need to do your homework before you take out cargo insurance when transporting goods outside the EU. Ask yourself, is your insurer selling you the right policy to ensure all your liabilities are covered at every stage of your shipment’s journey.  There are solutions to ensure you are insured for every step of the way such as including clauses which identify the insured interest rather than leaving it for guesswork, or taking advantage of a fronting cargo liability policy with local insurers who have offices in other countries. All that requires effort, but until such a time as the Eastern regions of the EU comply with the various legal regulations on logistics insurance side, it is essential.  Gone are the days where Eastern European countries were considered wild without a care for legitimacy, if we challenge and question and insist on the correct insurance for our shipments today, maybe we can bring about change so that cargo insurance policies are robust and legitimate for their whole journey, no matter what country they are going to in the future.

Gediminas Dauksa GrECo

Gediminas Dauksa

Group Practice Leader Transportation & Logistics

T +370 616 08451

Karina Gaidukaitė

Legal Counsel

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