Spanish risk managers welcome positive aspects of ESG

Spanish risk managers say that they are getting increasingly involved with the adoption of ESG principles by their companies, and insurers are rewarding positive track records with improved terms and conditions.

But insurers are being urged to step up the pace of innovation for new technologies that are being developed to support the green transition.

During the recent Spanish leg of our annual Risk Frontiers Europe survey of leading European risk and insurance managers, high profile members of Igrea, the Spanish risk management association, pointed out that if the tools and technologies used to make the energy transition can’t be insured, it will not happen.

Senior representatives of HDI Global in Spain, the lead sponsor of the survey, accepted that the insurance market needs to accelerate development work on new coverages to support the transition. Creative use of captives is one potential route, they said.

“We have seen of late how the insurance and reinsurance markets are creating ESG-related rewards,” said Ramón de la Vega, risk financing director at telecommunications group Telefónica.

“They are ‘rewarding’ companies that have an important commitment to ESG with more capacity for a programme, with a discount on the rates or a longer LTA that would not have been offered otherwise. We are already seeing this process and benefitting from it,” he explained.

“We have recently done roadshows to renew two large programmes, and one of the points that was relevant to underwriters was the presentation of the group’s ESG policy and the ESG ratings provided by external agencies,” he added.

As a result, risk management departments need to work closely with other parts of the company that are in charge of implementing the ESG policy.

“The risk and insurance management department works closely and provides support to the sustainability department, as there are parts of ESG that are linked to what we do,” De la Vega said.

“In our company, ESG principles are integrated into our strategic plan. They are values applied across the group. We believe in them and so do our investors and stakeholders, and underwriters are starting to ask about it too,” said David González, director of risk and insurance at construction and concessions group Sacyr.

“Although the ESG policy is not an area that is under my responsibility, I play an active role in it. Improving and optimising sustainability is a corporate goal,” remarked Lourdes Freiria, general director of risk and insurance at construction firm Group San José.

“From an insurance point of view, we have had to certify our strategies and policies to renew some corporate programmes such as D&O,” she added.

“I believe companies are finally keen on investing in modelling the impact of climate change on our assets,” said Daniel San Millan, president of Igrea.

But San Millán, who is also the risk manager at the construction firm Ferrovial, said the insurance market needs to do more than asking about their clients’ ESG credentials.

“There are several insurance companies that have their mouths full of green talk, but when we go to them with a renewable energy risk, or try to buy cover for a waste recycling plant, they treat us very poorly,” he said. “I see a certain lack of commitment from the market with some risks that are actually focused on creating a greener world.”

Nuno Antunes, country manager for Portugal/Iberia and head of client strategy at HDI Global, said that ESG is undoubtedly a hot topic currently but pointed out that the significance of ESG really depends on the customer and the sector they operate in. He conceded that the insurance market does need to play catch up with some technologies.

“Specifically on the E, some of our clients are very involved in the green transition and they are struggling to find adequate capacity for the new technologies involved. As an industry, we need to find solutions for these innovative technologies and quickly as part of a global effort,” he said.

“This is an area where, for instance, the partnership between clients – via their captives or other risk retention mechanisms – the brokers and the insurers is not only desirable but necessary so that we can find the right balance that enables the execution of these new projects,” added Antunes.

Juan Aznar Galdiz, director general of HDI Global Spain, agreed with his colleague and said his firm is working hard to find solutions.

“Yes, this is an important area. Agers, the Spanish association of risk managers, was asking us the other day whether we, as insurers, are prepared to support green hydrogen, for example. Do we have capacity for the new technologies? The answer must be yes or there will be no green transition. We at HDI are investing in this area and working hard to find solutions. But it has to be recognised that it is a challenge for the insurance market to cover completely new technology such as this,” he said.

Antunes stressed that captives and other so-called alternative solutions could play a positive role with emerging risks such as those associated with ESG.

There are not many captives run by Spanish companies currently, but the recent hard market has certainly persuaded many to consider the option and appreciate the value that risk management, engineering and a more sophisticated approach to risk transfer can bring, he said.

“We are asked increasingly whether a captive would make sense. Additionally, [there is] the fact that compared to three or four years ago, we now have a much different situation in terms of insurance market cycle and much higher interest rates. That has certainly brought back the captive topic to the boardrooms as a way to reduce volatility in costs and increase financial income. However, as we all know, this is not a quick fix. But this is certainly a trend across Europe as customers look to incubate their risks and increase retentions, as is alternative risk transfer (ART),” he explained.

Aznar agreed. “Spain is not a big market for captives historically. The long soft market meant that it made sense to just buy insurance rather than use a captive. The arrival of the hard market, however, has changed that attitude. A lot of companies are looking at captives and medium-sized companies too. Others are now actively looking at ART solutions,” he said.

“One reason is, of course, the lack of capacity and rising prices, but we are also seeing a higher level of professionalism in the risk management sector now and the profile of the profession has improved within companies, with risk managers closer to the board at the heart of the company. This is partly because boards now appreciate that a more professional approach to risk management and transfer can save a lot of money. Risk engineering is important in this regard too. We have a very experienced team of risk engineers and it is an important value added for customers in such a market. And this expertise can be exported too if a customer has operations in Mexico, as a recent example. This is valued,” added Aznar.