“Combating climate change is without any doubt the challenge of our century,” comments the president of the German Insurance Association (GDV) on the EU Commission’s plans to make the single market emission-free by the year 2050. According to Weiler, the New Green Deal accepts this challenge and drafts a new growth strategy. “Climate protection and economic prosperity are not opposites. Insurers will support the necessary transformation to a climate-neutral economy – which is in their own interest, too: because if the earth heats up by, on average, four degrees it simply would no longer be possible to offer reasonable insurance cover for many risks.”
As long-term investors, insurance companies can, in the opinion of the GDV president, make a significant contribution to climate protection but such investments must be sustainable on an economic level, too.
The EU Commission’s “New Green Deal” is ambitious: if all goes to plan, Europe won’t be emitting any greenhouse gases into the atmosphere any more by the middle of the century. “The objectives will only be reached if the deal combines the necessary rigorous climate protection requirements with an adequate level of flexibility, market focus and innovation support,” continues Weiler.
Seven positions on the Green Deal
In Germany, over the past year alone, storms, hail and heavy rain have caused €2.7 billion in damage to homes, household goods, commercial and industrial companies. All climate models show that we will in future have to adjust to more extreme weather scenarios. Whether this is accompanied by higher claims depends on the correct adaptations to climate change. Insurers are already helping to develop protection concepts and solutions.
The focus is on the following positions:
1. A Green Deal must still allow competitiveness on an international level
No Green Deal can succeed without regulatory requirements. However, statutory rules must not cut off market forces or weaken the competitive position of companies: without a sustainably growing economy, Europe will not play a leading role in combating climate change.
2. Insurers are the ideal partners for infrastructure projects that protect the environment
According to EU estimates, annual investments totalling €180 to 290 billion are required to achieve the Paris climate targets. Insurers can provide capital to build sustainable infrastructure. They are already the largest financiers of the energy revolution: to date they have provided just under €6 billion in capital for relevant projects. The industry wants to further expand its commitment and is the ideal partner for the energy revolution: in 2018, German primary insurers have increased their infrastructure investments by nearly a third to €32 billion. Public-private partnerships with their long life spans fit well into the industry’s business model. There’s only one problem: there aren’t enough relevant projects – particularly in Germany.
3. Sustainable investments need both standards and freedom
The definition of sustainability can be very imprecise. Above all, the introduction of a classification system and new standards, for Green Bonds for instance, would increase clarity and transparency for investors and consumers. As necessary as a common understanding of the term is, the required freedoms are just as important. Depending on the size and individual situation of the insurer, different sustainable investment strategies may be appropriate. Diverting capital flows will however not be enough to combat climate change successfully. A price tag for the production of carbon dioxide is therefore a useful measure.
4. Investments can be both high-return and sustainable
An investment strategy that focuses on sustainability can deliver a good performance. There are appropriate ways to consider ecological aspects in investment decisions – after all, German insurers invest or reinvest on average €1.3 billion every day. However, these considerations must always be in accordance with the statutory regulations of the German Insurance Supervision Act and the Solvency II rules.
5. The customer is the top priority
Insurers are accepting the ecological challenge but safeguarding the customers’ premiums must be the number one concern: sustainable investment is more than ecologically correct. Insurance companies need safe and profitable investments so that they can pay the promised benefits at any time, both in old-age insurance and in property and casualty insurance. This condition trumps all other considerations and also applies when taking ecological aspects more into account. Otherwise customers would need to make a trade-off between safety and sustainability, i.e. accept lower safety and fewer guarantees in exchange for more ecologically sustainable investments.
6. Changing construction regulations today prevents future claims
The climate changes we are experiencing today are not the result of current emissions: they are the consequences of past activities. Beyond climate protection we therefore have to also deal with protection from the consequences of climate change. If heavy rain and hail increasingly threaten our property, construction planning and building regulations also have to change – starting today. The later we begin the higher the macro-economic damage will be in the future. Once the consequences have occurred, it is too late. The vast majority of development and zoning plans were agreed at a time when much scientific knowledge about extreme weather situations and climate change was not yet available.
7. No risk awareness without education
Education and prevention are paramount in order to limit future claims and be able to insure natural hazards both today and in the future. Insurance companies are doing all they can to inform people about the risks of extreme weather events and natural disasters. All of the experts must combine their expertise and clarify the risks and protection options. The German government must consolidate the existing information on natural hazards and make it available to the public on a centralised online platform; other countries have already done that. That’s why insurers call for a national natural hazards portal and information campaigns to go with it. The industry has demonstrated how this can be implemented in the “Kompass Naturgefahren” (Natural Risks Compass) feasibility study. Location-specific information on risks from flooding, heavy rain, lightening and over-voltage as well as storms and hail should be a matter of course in the digital society.