Exclusions, limited or unavailable cover are ‘punishing’ insureds for embracing the green transition, says European risk association
The Federation of European Risk Management Associations (FERMA) has called on the (re)insurance industry to do more to support its corporate clients in making the transition to carbon neutrality.
FERMA has published a whitepaper, Insuring the Transition, ahead of its Forum on 9-11 October. Prepared by members of FERMA’s sustainability committee, the paper calls on the (re)insurance industry – and other stakeholders – to address urgently a number of insurance-related issues. It will be the subject of discussion with industry leaders at the Forum.
FERMA president Dirk Wegener said: “The Corporate Sustainability Reporting Directive will come into effect for financial reporting periods starting on 1 January 2024. This is only 16 months away.
”Companies will be under pressure to show their progress to carbon neutrality, but lack of sufficient risk transfer will slow investments in innovative technologies as more risk must be carried by the enterprise.”
Insuring the transition
FERMA CEO Typhaine Beaupérin commented: “We understand that (re)insurers are grappling with regulatory, business and legal developments related to climate change, but we urge them to build a better partnership with their corporate clients to facilitate the transition.”
According to the white paper, businesses are experiencing restrictions on insurance coverage for their transition activities in three ways:
- Limited or unavailable cover because of past activities, such as links with coal or mining. This makes it more difficult for such companies to proceed with transition. For example, a company that supplied kerosene has begun to introduce an alternative. but because of its previous activities, insurers are not offering full coverage, if any at all.
- Lack of coverage for specific technologies or materials. This includes (offshore) solar panels, (offshore) wind farms, hydrogen fuel or storage, new construction techniques, solutions or materials that are underpinning the transition from fossil fuels.
- Exclusions of specific risks. Property damage and bodily injury may be excluded when there is a direct or indirect link with coal plants or mining activities - or when battery packs are stored or used in for instance in sprinkler pumps.
The report concludes: “Businesses should not feel punished by insurers for embracing the green transition. As a community of insureds, we are calling on insurers to move from an approach where there is a notable and strict adherence to backward-looking underwriting guidelines.
“Instead, corporate customers want insurers to gain a holistic understanding of their risks and needs, which would give more flexibility to underwriters and engineers to do business beyond rigid guidelines.”
Typhaine Beaupérin added: “Captives can be a valuable part of the management of transition risks, but they are not a panacea. We choose the theme transitioning together for the FERMA Forum because we want to work with the insurance community.”