Consequences for the risk landscape and property insurance
In order to achieve the EU’s climate and energy goals by 2030, an action plan has been developed which directs investments towards sustainable projects and activities as the most important measure and which at the same time makes an important contribution to the achievement of the UN Sustainable Development Goals. Sustainability is therefore becoming an increasingly important goal for companies, which will also have a radical impact on the risk landscape and, subsequently, on insurance management. With a view to property insurance, the following changes in particular are emerging.
European Green Deal
The EU’s Green Deal strategy includes opportunities for companies and states alike to secure stable economic development through successful investments in sustainable technologies and alternative forms of energy. In addition to measures mitigating climate change, there are also objectives to make the world a cleaner and healthier place again. In many ways, this means a shift from traditional to alternative technologies. One example is decarbonization, i.e. phasing out coal as the first measure, followed by abandoning the use of fossil fuels for industrial processes, heating, and as operating means of transport. Most of these steps have an impact on the future employment situation in all areas of fossil fuel production and will also entail new risks from the switch to new technologies and the availability of alternative resources.
The EU Taxonomy Regulation defines the criteria for sustainable investments and at the same time requires from financial institutions (including insurance companies) to model and quantify the effects of ESG factors (Environmental Social Governance), in particular climate change, in their regular Solvency II stress tests and report on the results.
ESG changes the insurance industry
Some insurers have already started to restrict their portfolios to “clean energy” and are therefore no longer providing capacities for coal-fired power plants, for example. The Axa Group, Allianz SE, Aviva plc, Generali Group, Münchener Rückversicherungs-AG (Munich Re), Scor SE, Swiss Re Group and Zurich Insurance Group recently founded the Net-Zero Insurance Alliance (NZIA), which aims to move their underwriting portfolios to net zero greenhouse gas emissions by 2050. Insurers can individually decide how to achieve this goal – as potential measures were among others listed
However, ESG does not only play an important role in insurance company’s investment and underwriting strategies – it has also been recognized that ESG factors in industrial insurance could in future be an important source of information for assessing corporate risks. For example, a study by Allianz Global & Corporate Solutions found that “ESG parameters have predictive power and provide useful information for effective risk analysis”.
As a leading risk management and insurance consultant, we accompany our clients in the implementation of their ESG goals and are happy to support them in all transformation processes towards more sustainability by analyzing the changes in their risk landscape and develop tailored solutions, e.g. for property insurance for alternative energy generation.
Practice Leader Property & Engineering
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