The relevance of sustainable insurance coverage in Europe
With the increasing impact of climate change and interest in renewable energies, sustainability is becoming a key priority for companies in all industries – but insurers are ahead when it comes to long-term solutions.
Sustainability is a complex responsibility. Businesses need to ensure that their internal environmental, social and governance (ESG) principles are in line with best practice and good ethics, while finding ways to help improve society and the environment in general. The insurance industry is uniquely positioned to make a strong contribution to sustainability, both as an investor in sustainable initiatives and as a provider of climate protection for our customers.
Insurers as investors in sustainability
Investing in sustainability has the power to make a big impact. The European Commission reports that Europe needs to close an annual investment gap of € 260 billion in order to meet its climate and energy targets for 2030. Insurance has the ability to achieve this goal with great strides. Insurance Europe reports that the insurance industry is Europe’s largest institutional investor and a key provider of stable, long-term finance for governments and businesses. A 2019 report by Insurance Europe also found that European insurers wanted to allocate around € 150 billion for sustainable investments by 2020. This investment is a direct result of the insurance business model, in which policyholders pay upfront premiums that are invested until claims and benefits are due.
Take the example of an insurer in the Netherlands that is partnering a € 300 million fund for more sustainable schools, theaters and other public buildings. In Sweden, insurers’ investments in 2018 have successfully funded green bonds issued by the City of Stockholm, including energy-efficient living, power points for electric cars, schools and a modern wastewater treatment plant. Insurers also contribute to sustainable communities, with investments by Austrian insurers leading to the creation of more than 100,000 units of affordable rental apartments.
Sustainability through insurance products and risk management
Insurers also play an important role in preparing customers for the effects of climate change. According to the latest Insurance Consumer Study from Accenture, the demand for sustainable insurance products is increasing. For example, millennials and younger consumers (18-34) have shown greater interest in digital offerings that help them make safer, healthier, more sustainable choices, with digital experiences that promote sustainable travel and shopping practices.
Take the example of the Sanitas Healthy Cities initiative. The project was launched with the aim of making the connection between health, the environment and mobility in European cities tangible. It brought together companies, workers, public institutions, NGOs, industry associations and foundations around two common goals: the fight against sedentary lifestyles and the transformation of the cities in Europe into a healthier and more sustainable environment. By measuring customer steps and setting goals, Sanitas responded by donating to greening public infrastructure every time a goal was met. The fifth edition of the “Healthy Cities by Sanitas” initiative was recently completed with more than 2.3 billion steps by the employees of the 40 participating companies. They all worked together to fulfill the company’s commitment: to make a donation to an urban renewal project in Madrid that helps protect the health of its residents. This was a 75 km long belt of forest that will delimit the city.
Risk management, identification and recovery form the foundation of the insurance business model. This is where European insurers can make a positive contribution to sustainability by offering their customers sustainability incentives (as in the example above) and updating our risk assessment and underwriting guidelines to improve the consideration of long-term climate changes and thus tailor-made products for consumers with different environmental risk profiles. On a broader level, insurers are well positioned to help European policymakers with tools such as risk zone classification and mapping and to contribute to a better understanding of climate threats through forward-looking risk models. Some national insurance associations have also teamed up with authorities to share and analyze data on climate-related damage.
In summary, insurance plays a central role in promoting sustainability in Europe and the rest of the world. These interventions can take several forms. However, to get a complete picture of sustainability, we need to examine what sustainability means and how that definition has expanded. In this series, I’ll look at the key ways insurers can drive sustainable goals in the European market and identify companies that excel in that regard.
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