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How European insurance companies can combat climate change




In the wake of COP26, sustainability has taken its rightful place at the top of the corporate agenda. But when insurance companies determine their sustainability strategies for the coming year, it is important to have a holistic understanding of what the term really means – for companies and for society.

Sustainability was historically defined by the UN Brundtland Commission as “meeting today’s needs without compromising the ability of future generations to meet their own needs.” With increasing threats of climate change, insurance companies have a responsibility to use their business model and the strengths of their core business to ensure that their customers and future generations are prepared to respond to the ongoing effects of climate change.

Climate resistance: what insurance companies can do

In practice, climate change considerations can be integrated into many aspects of the insurance model. Insurers can provide solutions to manage the impact of customer risks, consider it as a factor in the emission process, reward the transition to more sustainable approaches for eg: transition from fossil fuels and seek public-private partnerships that promote climate resilience at grassroots level. As we saw in the recent discussions at COP26, European countries and industries are pushing for a transition from fossil fuels. As an insurer, we can support this by refraining from insuring and reinsuring coal and examining our coverage of other carbon dioxide-containing industries.

Data: the core strength of the insurance industry

Insurers are used to modeling and assessing potential risks. This has given the industry a place in the forefront of the extreme weather situations that are a result of climate change, the threats they pose to people and the devastation they leave behind. With digital tools such as advanced aerial photography and machine learning, we can provide a deeper understanding of risks, resulting in accessible and affordable products that respond to disasters, but also help community insurance companies prepare for the ongoing effects of climate change.

How European insurance companies drive climate resilience

In July 2021

, eight insurance companies including AXA, Allianz, Munich Re and Zurich joined the Net-Zero Insurance Alliance (NZIA). The UN-convened group has promised to move its issue portfolios to zero emissions by 2050 and membership is expected to grow in the broader industry. Another collaboration can be found in the industry-wide Insurance Task Force (ITF) working with Lloyd’s, which at COP26 announced the Disaster Resilience Framework for Climate-Vulnerable Countries, as part of its activities for the Prince of Wales Sustainable Markets Initiative (SMI). The Disaster Resilience Framework for climate-vulnerable countries highlights the possibility of combining public and private investment with insurance to drastically improve disaster resilience for some of the world’s most vulnerable. The program is being tested in Kenya, where insurance companies will partner with other industries to create a more resilient agricultural sector in the drought- and flood-prone country.

Insurers in Europe also promote sustainable goals individually. Swiss Re recently announced that it will phase out thermal carbon-related insurance in OECD countries by 2030, in the rest of the world by 2040 and phase out coverage for the world’s most carbon-intensive oil and gas companies by 2023. Lloyds has ordered agents can not provide new coverage for oil sands, thermal coal-fired power plants, thermal coal mines or new Arctic exploration activities from the beginning of 2022 and not renew such coverage from 2030.

When it comes to providing climate-resistant policies to customers, entities such as Seguros Compensation Consortium in Spain, compensate for damage caused by natural phenomena provided that the product or products concerned have insurance. This extraordinary risk insurance is financed by a small supplement to all insurances.

We are expanding our definition of sustainability

As our focus on sustainability intensifies and develops in the industry, it is clear that the definition is not just about climate change or risk management. To meet the needs of today, while securing the needs of the future, we must focus on helping those most at risk. For example, lower-income communities, more statistically disadvantaged communities are suffering from climate catastrophes, and with an aging population on the rise, we need to re-evaluate our existing support models. In the next article in this series, I will look at how insurance companies can support these vulnerable communities and push for true sustainability, now and in the future.


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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.


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