ESG is now firmly established as a driving force in the corporate world and it has inevitably worked its way into the life of Europe’s risk and insurance managers. Dutch risk managers agree that ESG cannot be ignored by their profession but stress there is some way to go before its real impact on insurance programmes is clarified.
ESG is definitely having an effect on the risk and insurance management profession but more from a risk, rather than insurance management, perspective, according to Jeroen Gruter, corporate insurance manager at Rotterdam-based financial services group TBI Holdings.
“The true focus of ESG is operational risk management not insurance. ESG is driven largely by financial risk, which is a fundamental difference with insurance,” he said.
So far, the impact of ESG on insurance is limited.
“I hear the word ESG used by insurers but is it really applied in reality? They say they are asking for the information but I am not sure they are actually using it for now. I hear some insurers want to know about your ESG strategy. They say they will be more active in future but not for now,” added another Risk Frontiers Europe participant.
Marc Heiligers of Akzo Nobel agreed that the whole ESG-based approach to underwriting is a serious work in progress. “I question if insurers really take the ESG information we provide into account. They ask for our ESG reporting information. But do they really take that into account? I am not sure for now,” he said.
Annemarie Schouw, manager of risk and insurance at Tata Steel Nederland, fully agreed with her colleague. “It is not insurance-driven – it’s actually your license to operate,” she said. “Decarbonisation is a hot topic and some insurers are saying they are not keen on covering old school industries but this change cannot happen overnight. It’s a transition.”
This was a good point made by Schouw. Of course, insurers need to be saying the right thing about underwriting “old school” industries to uphold their image and reputation. Perhaps they shouldn’t be underwriting new fossil fuel projects and should instead focus their efforts on supporting renewables and other new technologies needed for the transition.
But the reality is that the transition to net zero is exactly that – a transition. It will not and cannot happen overnight, and corporations currently active in the old industries need continued support as they transition to the new.
Having said that, the clock is ticking and risk and insurance managers need to be very aware of this. “If you don’t do anything now then in five years you may find it difficult to find cover,” pointed out one participant in the Risk Frontiers Europe roundtable.
The construction and real estate sector is particularly challenged from an insurance perspective currently as it attempts to deliver the goods on ESG.
New environmentally friendly construction methods such as mass timber are proving difficult to cover as the insurance sector plays catch up.
This challenge was a fundamental part of the agenda at this year’s Narim congress, during which the Risk Frontiers Europe roundtable was held.
The event’s ‘transform to perform’ theme is central to Narim’s activities and communications throughout the year, not just for the congress.
Going forward, the association will be paying attention to the role of ESG and the insurability of sustainable initiatives.
Dutch risk managers, along with their peers across Europe, want insurers to insure them in an acceptable manner. They want to know what insurers expect from them.
Narim is working with the Dutch association of corporate insurers (VNAB) to discuss this very topic. The VNAB recently held a series of podcast discussions on how to support the transition and maintain insurability.
Bonny Lepidis, insurance manager at housing associations Havensteder & Trivire, certainly sees challenges in this area. “Carrying out a true ESG programme in real estate is obviously a good thing but we are also challenged when the insurers say this is an accumulation risk when they are covering such risks in other countries. I show what we have done to manage the risk but there are only a few insurers left. This is an important transition that needs to happen and probably needs an industry-wide strategy,” she said.
Another related ESG challenge is a fundamental principles of insurance – replacement value.
If an “old school” asset burns down and needs to be replaced, under new rules, regulations and reputational pressure, it has to be rebuilt as a more environmentally friendly asset. However, the new ESG ‘compliant’ asset will inevitably be more expensive.
“I ask myself the question: If we need money from the insurers to pay for an asset to be replaced will they do so in an ESG manner in law?” asked Gruter.
“The policy says that we replace the asset as it was before the loss but if it is constructed the same as in the past then it is not what anyone wants. This is a problem,” he said.
Schouw agreed with her Narim colleague and thinks a wider solution is needed. “We need to address this as a market because of the whole net zero transition in Europe,” she said.
These are big questions for the risk and insurance sector to tackle.
The world is rightly committed to the transition and the EU is busy coming up with new rules and regulations designed to support and drive the change. But if the insurance sector is not willing or able to support this transition with adequate coverage for new greener technologies, techniques and products then we have a big problem. As Schouw said, it seems a market-wide approach is needed.