Martin Gary, Managing Director at Albatros Versicherungsdienste GmbH discusses with Ilse Konheisner-Holub, Group Practice Leader Aviation at GrECo Group, whether the insurance industry is currently supporting the sustainable development of aviation, future trends and technologies being harnessed to meet ESG targets, and current restrictions impeding aviation’s sustainable future.
Insurance needs to be more sustainable to support aviation in meeting its ESG targets
Konheisner-Holub: In your experience, what measures relating to ESG are already recognisable among insurance companies and are there already policies in place to reflect sustainable actions by airlines (such as modernising the fleet with more fuel-efficient aircraft) in underwriting?
Gary: To my knowledge, there are currently no recognisable measures being taken by insurers to shape their insurance portfolios for aviation insurance, for example in terms of risk selection or product design. There are also no standards for insurers to measure emissions in the aviation sector. In theory, the standardisation of such criteria is critical to make them usable at a reasonable cost. However, given the international nature of the aviation insurance sector, it is very difficult to foresee how such standardisation could be achieved. We know from some insurers that they are working intensively on the question of assessing their aviation insurance portfolio according to ESG criteria and we are also in dialogue with some of them to support them in doing this.
Konheisner-Holub: What direction do you think insurers will take with regards to sustainability criteria?
Gary: The European Commission’s Taxonomy Regulation will gradually force insurers to become more sustainable. In addition to organising their investments and their own operating activities according to ESG criteria, there will be increasing pressure on insurers to take a closer look at the impact of their insurance portfolio in successfully meeting the European Commission’s ESG goals. For industries with a high proportion of CO₂ production in particular, metrics and sustainability criteria will be included in the underwriting process, which could make some industries more difficult or even impossible to insure.
ESG criteria are an integral part in the placement of aviation risks
Konheisner-Holub: Does the aviation industry put pressure on insurers to agree such ESG targets or is this topic avoided?
Gary: No, the industry neither exerts pressure nor avoids this topic. It is clear to everyone involved that ESG criteria are becoming an integral part in the placement of aviation risks. The airline industry is working hard to improve its carbon footprint and its overall ESG balance sheet. It is doing this in its own economic interest, but also in the knowledge that its customers are demanding this and will demand it even more in the future. In our view, it is also far ahead of other industries in this area. For this reason, the airline industry has nothing to hide and is in a position to make transparent the many measures it is taking to move towards climate neutrality. For their part, insurers are required to objectively assess these measures and take them into account when pricing insurance risk. In our renewal discussions with insurers, we are already intensively discussing the technological and operational measures taken by airlines that contribute to sustainable air travel, but many insurers are not yet in a position to assess the impact of these measures.
Konheisner-Holub: The Lufthansa Group has long relied on a self-insurance instrument (Delvag). Do you see this as a suitable means of hedging future risks?
Gary: Absolutely. Delvag will be celebrating its 100th anniversary in 2024; it was founded in the pioneering days of aviation, when there was hardly any aviation insurance cover on the market and the first commercial aviation insurers were only just establishing themselves. Today, we continue to use Delvag for specialised solutions that are unique in the aviation insurance industry and that enable us to offer our customers insurance cover that the insurance market cannot provide. The customers of the Lufthansa Aviation Insurance Group, the world’s largest aviation insurance purchasing group, thus benefit from innovative insurance solutions. With our insurance concepts, we are trendsetters in the industry, which follows suit to our ideas. Together with Delvag, we offer insurance for standard deductibles for aircraft hull insurance, but we also have solutions where our customers want to pay higher deductibles than those customary in the industry. As catastrophe risk cover is particularly important in the aviation industry and has a significant influence on premium development, we have successfully developed concepts with Delvag that can ensure premium stability even in the event of major losses.
Self-insurance instruments will also play a key role in the development of the aviation industry towards climate neutrality. The technological development of aircraft involves the use of new materials that are more expensive and require more sophisticated repairs than conventional materials. The insurance market does not yet honour the use of these materials and primarily sees the increased claims burden from more expensive materials and repair procedures as a problem. In this transformation phase, self-insurance instruments can represent a significant lever.
A realistic look at aviation’s climate neutrality
Konheisner-Holub: Is it possible for aviation to become climate-neutral?
Gary: Firstly, it should be noted that only around 3.5 per cent of global warming caused by human activity is due to global aviation. This is not a small amount, but it is still much less than is often suggested during public debate and certainly less than other industries are responsible for.
IATA (International Air Transport Association) has set the goal of making aviation CO₂-neutral by 2050. This can be achieved through various measures, such as using more sustainable fuels, improving aircraft efficiency and utilising carbon capture technologies. It is an ambitious goal, but the aviation industry is working hard to contribute its part to protect the climate. The Lufthansa Group wants to halve its net CO₂ emissions by 2030 compared to 2019. By 2050, the CO2 balance should be neutral. This reduction path has been validated by the Science Based Targets Initiative (SBTi). With this initiative the Lufthansa Group is the first airline group in Europe to pursue science-based CO₂ reduction targets. SBTi is a co-operation between the United Nations Global Compact, the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).
At the same time, we want to make it ever easier for our customers to reduce the carbon footprint of their flights. Lufthansa Group passengers have long been able to offset the CO₂ emissions of their journey, for example by using SAF or through certified climate protection projects to offset flight-related emissions.
Is Sustainable Aviation Fuel (SAF) the answer?
Konheisner-Holub: The aviation industry is increasingly talking about Sustainable Aviation Fuel (SAF) as a means to becoming more sustainable in operations. Unfortunately, capacities here are very limited and are not even sufficient for the on-demand flight segment. How is this challenge being dealt with along the supply chain?
Gary: Sustainable aviation fuels are currently only available in limited quantities and are around five times more expensive than fossil fuels, while electricity-based fuels (power-to-liquid = PtL) are up to ten times more expensive. Those in favour of high quotas proclaim falling prices because of the SAF market ramp-up. However, there is much to suggest that the cost degression will not come so quickly. It is completely uncertain how price and production capacities of electricity-based fuels will develop. They are currently only available from test plants. Incentive systems for SAF and PtL must promote the production and use of sustainable aviation fuels. Effective funding instruments, especially for the first particularly cost-intensive large-scale projects, should be realised unbureaucratically. To increase supply, the EU has set ambitious SAF quotas, which will gradually increase from 2025.
The Lufthansa Group is one of the world’s largest purchasers of SAF from biogenic residues and is driving forward the next generation of SAF (PtL). Lufthansa has agreed a pioneering technology cooperation with Airbus and MTU, the German Aerospace Centre, and Munich Airport, among others. The aim is to clarify key questions such as how the market launch and industrial scaling of PtL aviation fuels can be accelerated, what effects PtL fuels have on value chains and local air quality and to what extent PtL fuels can also positively influence so-called non-CO₂ emissions.
How Lufthansa is driving innovation in aeronautical CO2 emission reduction
Konheisner-Holub: Apart from SAF and the switch to new, more efficient aircraft, does the Lufthansa Group have any other measures in place to reduce CO2 emissions?
Gary: In addition to purchasing new aircraft – the Lufthansa Group invests 2.5 billion Euros per year – there are many exciting, innovative ways for aviation to reduce CO₂ emissions. One of these is the AeroSHARK surface technology developed by Lufthansa Technik and BASF. It is modelled on the skin of sharks and reduces air resistance thereby lowering the aerodynamic drag of the aircraft and reducing fuel consumption. The Lufthansa Group is the world’s first airline group to operate long-haul aircraft with this coating and we’re already saving 12 tonnes of kerosene and 38 tonnes of CO₂ per day.
Another area we are working on is new technologies that optimise flight routes. For many years, European airspace has been characterised by inefficiencies, an operational and technological patchwork, rising costs and significant capacity bottlenecks. Delays and detours occur every day, resulting in unnecessary CO₂ emissions. To fly in the most climate-friendly way possible, airspace must also be utilised as efficiently as possible. The Single European Sky (SES) has been on the political agenda for decades, but it is still not a reality. If implemented correctly, a single European sky would have many advantages for customers and companies. Without borders in the sky, the capacity, efficiency, and flexibility of airspace management would increase. If airlines no longer have to take detours, they will reach their destinations more punctually whilst reducing kerosene and CO2 emissions by up to 10%.
As a further example, the Lufthansa Group is relying on a new system that will be mandatory in the EU from 2028. The “Automatic Dependent Surveillance – Contract Extended Projected Profile” (ADS-C EPP) continuously reports flight data to the ground in real time and thus enables the current route to be continuously adjusted. Air traffic controllers can therefore make better use of optimally coordinated flight routes and flight space capacities. Detours are avoided and kerosene consumption and CO₂ emissions are reduced.
ADS-C EPP also optimises take-offs and landings: In traditional stair-stepping flight, during take-off, aircraft reach the desired cruising altitude in individual stages. This consumes more fuel and requires air traffic controllers to give instructions for each step. On ADS-C EPP optimised climb flights, aircraft can climb continuously and save fuel. The technology also saves CO2 emissions during landings, as it allows aircraft to fly at their optimal and more fuel-efficient altitude for a longer period.
Direct Air Carbon Capture and Storage (DACCS) technology is also considered a promising solution for reducing CO₂ in the atmosphere: With DACCS technology, CO₂ is filtered out of the air and stored permanently. The Lufthansa Group began researching this innovative process at an early stage and sees it as a complementary instrument in its sustainability strategy. We recently concluded a contract with Airbus for the advance purchase of verified and permanent CO₂ emission reduction credits from DACCS technology.
Alternative drive systems are not the answer… yet!
Konheisner-Holub: How viable are alternative drive systems such as electric or hydrogen and what challenges and risks do these new technologies entail?
Gary: Both technologies are an option for the aviation industry: Electric drives have the potential to be locally emission-free and reduce noise levels, whilst hydrogen drives only produce water vapour as an emission. However, there are also challenges and risks associated with the introduction of these new technologies. One of the biggest is the limited energy density of batteries, which can limit the range of electric aircraft. In addition, the infrastructure for recharging electric aircraft and producing green hydrogen is not yet sufficiently developed.
Another risk is the scalability and cost-effectiveness of these technologies. The development and production of electric and hydrogen aircraft requires considerable investment, and it is still unclear whether they offer a competitive solution. Nevertheless, the aviation industry and governments around the world are endeavouring to tackle these challenges and drive forward the development of alternative propulsion systems. It remains to be seen how these technologies will develop in the future.
About Martin Gary
Martin Gary has been a member of the management board of Albatros Versicherungsdienste GmbH since 1 November 2018. He started his career in the aviation industry in 1997 in the International Relations and EU Affairs Department at Austrian Airlines. Then he moved to the legal department of Austrian Airlines.
From 2003, he was responsible for AUA Versicherungs-Service GesmbH as an authorised representative. In 2017, he took over as Head of the Austrian Airlines Insurance department and was responsible for the appropriate and cost-optimised design of insurance cover for Austrian Airlines, including the preparation of risk analyses and cover concepts.
In January 2018, Martin was appointed as general representative for Albatros Versicherungsdienste GmbH and became a member of the Management Board with effect from 1 November 2018. He is responsible for Albatros’ corporate client business in the lines aviation, property, liability, and credit insurance as well as credit card insurance. He is also responsible for the Lufthansa Aviation Insurance Group, one of the world’s largest airline insurance consortiums.
Since 2021, he has also been a member of the Executive Board of Österreichische Luftverkehrs-Privatstiftung and a member of the Supervisory Board of Österreichische Luftverkehrs-Holding GmbH.
Martin Gary
Managing Director
Albatros Versicherungsdienste GmbH
Ilse Konheisner-Holub
Competence Center Manager Aviation
M +43 664 96 24 012
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