Insurance Europe Annual Report 2020-2021

Investment resilience

THE CHALLENGES

As sizeable, stable, long-term investors, insurers are uniquely positioned to contribute to economic growth in Europe

WHAT INSURERS CAN DO

WHAT POLICYMAKERS SHOULD DO

THE CHALLENGES

WHAT INSURERS CAN DO

WHAT POLICYMAKERS SHOULD DO

THE CHALLENGES

The European Commission's European Green Deal aims to make the EU economy sustainable, reducing EU greenhouse gas emissions by at least 55% by 2030 and achieving net-zero greenhouse gas emissions by 2050. And this transition is intended to happen in a just and inclusive way.

Europe's strategy will require private investment to finance the transition to a more sustainable and resilient society. Even before the COVID-19 pandemic, the Commission estimated that €260bn was needed annually just to achieve its climate objectives. With the effect of the pandemic, the need for investment in Europe's recovery is all the more urgent. As early as May 2020, the Commission estimated at €595bn per year (at least €1 190bn over two years) its investment needs to deliver the green transition and the digital transformation that is key not only to Europe's competitiveness but also for sustainable development.

Yet there is currently a lack of sustainable assets in which to invest, not least because Europe's energy mix is still highly dependent on fossil fuels, as opposed to renewable energy sources.

“The insurance industry is the largest institutional investor in Europe with over €10trn invested in bonds, equity and other investments, including infrastructure, property, loans and mortgages.”

THE CHALLENGES

WHAT INSURERS CAN DO

WHAT POLICYMAKERS SHOULD DO

WHAT INSURERS CAN DO

As Europe's largest institutional investors, insurers are uniquely positioned to contribute to economic growth in Europe and to help finance the transition to a carbon-neutral, resource-efficient and more resilient economy. Their business model allows them to provide stable, long-term funding for governments and businesses. Through their investment, insurers play a key role in achieving the EU's ambitions of strengthening the single European market and integrating capital markets in Europe, in line with the objectives of the Commission's Capital Markets Union (CMU) project.

Insurers have been at the forefront of sustainable investment for many years, taking concrete actions and incorporating sustainability-related disclosures, standards and sustainability strategies into their portfolios. Many have started to screen their investments through environmental, social and governance (ESG) criteria and to increase their sustainable investment commitments. According to Insurance Europe estimates, the European insurance industry plans to allocate over €140bn to sustainable investments by 2022.

All this has led to insurers already being significant investors in green, social and sustainability bonds. This includes financing sustainability-related projects, such as renewable energy projects, sustainable water management, energy-efficient and affordable housing, and other work supporting the UN Sustainable Development Goals. Insurers also offer sustainable investment products to their customers, issue green bonds and set internal corporate ESG targets relating, for example, to staff diversity and their own carbon footprints.

In addition, insurers are leading and participating in sustainability-related coalitions and alliances aimed at embedding sustainability objectives in both their investments and their underwriting, such as the upcoming UN-convened Net-Zero Insurance Alliance. These show how key insurers — in their roles as risk managers, insurers and investors — are in supporting the transition to a net-zero economy. Here are just a few examples from across the EU:

France: Insurers have joined forces to set up a scheme to support the recovery of SMEs and employment from the COVID-19 pandemic. Raised funds will fuel the investment capacity of SMEs and contribute to the growth of employment.
Germany: In 2020, insurers invested over €300bn in mortgages and covered bonds, helping fund mortgage loans for housing and non-residential property.
Italy: In 2020, insurers invested €7bn in infrastructure in sectors including energy, gas, construction and transport.
Poland: Insurers' investments in corporate bonds and equities provide capital to grow businesses as well as to finance public spending on health, education and infrastructure, resulting in a substantial increase in economic growth and employment.
Austria: Insurers' investments have led to the creation of over 100 000 units of affordable rental housing.

What Insurance Europe is doing

Insurance Europe recently became a member of the Green Recovery Alliance, an informal alliance bringing together MEPs, civil society groups, CEOs and business associations. The initiative was launched in 2020 by Pascal Canfin MEP to appeal for a green recovery from the COVID-19 pandemic.

Insurance Europe is active in the policy and regulatory process, where it provides expertise on sustainable finance and develops industry positions based on technical research and expertise. For example, jointly with other financial trade bodies, Insurance Europe identified the need for a central ESG data register to improve the availability of robust ESG data. This would help insurers to redirect their investments towards those that can really help with Europe's transformation.

As the European (re)insurance federation, Insurance Europe plays an important role in raising awareness of the key role the industry is playing and works with its members to help them do even more. Insurance Europe provides a forum to exchange experience and knowledge between members.

“To enable insurers to maximise their investment potential and contribute to sustainable economic growth, the right regulatory conditions and appropriate measures need to be in place.”

THE CHALLENGES

WHAT INSURERS CAN DO

WHAT POLICYMAKERS SHOULD DO

Increase the availability of sustainable and long-term assets

In line with the objectives of the European Green Deal and of the CMU project, urgent policy action is necessary to stimulate the supply of suitable sustainable and long-term assets for investment, such as infrastructure and climate-transition projects. Insurers are ready to invest more in sustainable and long-term assets to the benefit of a more resilient economy. Unfortunately, their willingness and capacity to invest is currently not matched by available assets. In 2020, Germany's first sovereign green bond drew huge demand: the €6.5bn launch of a green bond was more than five times oversubscribed by investors, who placed over €33bn in orders. In October 2020, the European Commission issued €17bn in social bonds to help protect jobs and support employment: the strong investor interest led to an oversubscription above 13 times what was offered. Similarly, in the private sector, the 2020 green hybrid bonds issue of a large European energy group was almost three times oversubscribed.

Address regulatory disincentives to insurers' long-term investment

Regulatory disincentives are also barriers to sustainable investment. The 2020 review of the Solvency II insurance regulatory framework is an opportunity to address these flaws, thus enabling insurers to maximise their investment potential and contribute to Europe's economic growth. A number of changes are needed to better reflect the long-term nature of the insurance business: reducing the excessive valuation of long-term liabilities; reducing artificial volatility in the balance sheet; and recognising how insurers' combination of assets and liabilities reduces their exposure to short-term investment risks. In short, insurers need an appropriate set of changes from the Solvency II review to unleash their capacity to help finance Europe's recovery and sustainable transformation.

Complete the work on a clear sustainability taxonomy for investments

The insurance industry supports the Commission's aim to have a clear taxonomy because this provides the foundation for a common definition of sustainable investing and avoids “green washing”. The taxonomy needs to really work in practice and support both "green" investments and those that will drive the transition to a sustainable economy. The taxonomy also needs to adequately consider the contribution of insurers' activities to climate change adaptation (see article on Climate resilience). As sustainability is a global issue, and European insurers' activities and investments are international, there needs to be international coordination and ultimately a global approach.

Tackle the existing issues with ESG data and disclosures

Comparable, robust and public ESG data is currently not available. Such data is vital for investment decisions and to comply with the new disclosure obligations. It is therefore imperative to make it mandatory for companies to provide sustainability information and to make this data publicly accessible via an EU centralised electronic register. Here, too, there is a need for international coordination and ultimately a global approach. Insurers therefore support both the Commission's initiative under the Corporate Sustainability Reporting Directive to make the reporting of ESG data mandatory for many companies and its plan to provide digital access to that data via a European Single Access Point (ESAP).

Focus product disclosures on those that are really useful and understandable to consumers

There is a significant risk of creating an overload and duplication of sustainability information. While the right disclosures can make sustainability more mainstream by mobilising retail investors and citizens, they should be needs-based and feasible. Requiring too much detail to be published can be confusing for consumers, hampering their decision-making and deterring them from actually reading the sustainability information (see article on Consumer resilience).

Adopt ambitious but workable timelines and sequencing of initiatives

Alongside the urgent need for action, the upcoming EC Renewed Sustainable Finance Strategy has to allow efficient and coherent implementation of the many initiatives in progress. This will allow investors to cope with the regulation that is still in development, the lack of data and the need to set up IT systems and operational processes, while still progressing their own efforts to shift towards sustainable investments and activities.

Tools for transition: an EU taxonomy and an Ecolabel

Awareness-raising campaigns

Insurers across Europe are involved in a broad range of awareness-raising campaigns. For instance, in Germany, risk-awareness campaigns are implemented jointly by state authorities, consumer protection organisations, the insurance industry, architects and other stakeholders. Their collaboration is built around a common goal: to raise awareness of the effects of climate change and natural hazards, of the benefits of loss prevention, and of best practices as regards natural catastrophe-resilient buildings. The high level of risk awareness in Germany is one of the reasons for the relatively low protection gap; indeed, the insurance penetration rate for natural perils such as storm or hail is more than 90%.
Most European insurance associations have initiatives to raise risk awareness, such as dedicated workshops, events and educational seminars, as well as frequent in-depth articles, themed newsletters, presentations and other publications.
Many French insurers have launched prevention campaigns and also support the campaigns of “Assurance Prévention”, an association founded by the French insurance association (France Assureurs). Assurance Prévention has produced numerous leaflets, infographics, quizzes, etc. to raise awareness of natural risks. Through its initiatives, it aims to develop a “culture of risk prevention” among students and teachers.

The Greek insurance association (HAIC) launched a digital awareness campaign — “Better to know than to think you know” — to provide consumers with useful information about private insurance and to set the record straight on some misperceptions. The campaign consists of six videos to educate the public about how private insurance works. Most of the videos emphasise the need for resilience in the face of natcat risks and the role of insurers in protecting private property. The videos are hosted on the interactive iknow-insurance.gr platform, which allows visitors to do a short quiz to test their knowledge of private insurance and then obtain additional information.
Insurance Sweden is currently working with its members on a common methodology for calculating carbon dioxide emissions during building repairs. The aim is to raise awareness of the impact on CO2 emissions of rebuilding after fire or water damage, and thus of the importance, from that perspective as well, of preventing such damages.
Insurance Sweden published a statistical report in October 2021 on how different municipalities and regions have been affected by damage caused by flooding, storm and fire.
Spotlighting the central role of municipalities in climate-change adaptation, Insurance Sweden ranks Swedish municipalities according to their adaptation work. The methodology is based on the European Commission’s Adaption Support Tool (2013). The ranking is released every other year, the June 2021 version is available here.
UNESPA, the Spanish insurance association, launched a dedicated website in October 2021 — “Naturalmente Protegidos” (Naturally protected) to explain how natcat insurance works in Spain. It focuses on 10 different risks (rain, flood, wind, drought, frost, hail, snow, earthquake, volcanic eruption and lightning) and details for each how insurance covers property, life, harvests and livestock. The website illustrates the success of the Spanish public-private natcat insurance model. It was jointly developed by private insurers (UNESPA), the Consorcio de Compensación de Seguros (CCS) government scheme and Agroseguro, Spain’s agricultural insurance system, and was launched within the framework of Estamos Seguros, UNESPA’s financial education campaign (running since 2016).
In collaboration with CEPYME, the Spanish confederation of SMEs, UNESPA launched in October 2020 “Prevenir para crecer” (Prevent to grow), a website with information on insurance for SMEs. The website highlights potential risks to which SMEs are exposed, including natcat-related risks, and provides advice on how to prevent them.
Insurance Ireland, the Irish insurance association, and a number of Irish insurers have launched consumer blogs and information repositories on their websites to share useful information with consumers about responsible and ESG investing.

Education

The European insurance industry works to increase financial literacy in relation to risk awareness, insurance protection and long-term savings:

The Croatian Insurance Bureau (HUO) launched a first educational project in 2009, “Financial literacy in the Republic of Croatia”, which was followed by a range of educational activities, often implemented jointly with independent insurers. One of these activities, “Safer Tomorrow”, was initiated in 2021, and aims to raise citizens’ awareness of the benefits of insurance. Within the framework of the project, HUO launched several videos and infographics, some of which specifically target young people.
The HUO organises a yearly competition for the best scientific paper, the best graduate thesis and the best undergraduate thesis in the field of insurance. HUO also publishes the “Croatian magazine for INSURANCE”, a scientific journal for professionals to advance good practice in the sector. Finally, some insurers in Croatia created a colouring book for children to promote financial literacy at a young age in a fun and simple way.
In Italy, the ANIA Academy, together with CeTIF (Research Centre on Technologies, Innovation and Finance of the Università Cattolica del Sacro Cuore), launched the second edition (2022) of the 2nd level master’s in insurance management to train professionals and enable them to respond to the challenges of the “new normal”.
ANIA is also collaborating with LUISS Business School to develop a major course in insurance management as part of its Executive Master in Financial Management.
Insurance Europe produces information for consumers as part of its “InsureWisely” financial education initiative. This includes one-pagers on different insurance topics, including how to limit the effects of natural catastrophes.
The French insurance association (France Assureurs) developed a series of educational booklets within the framework of EDUCFI (the French national strategy for economic, budgetary, and financial education), an initiative launched by the French Central Bank. These booklets help users to better understand how insurance works and what insurance products do and do not cover.
The Spanish insurance association (UNESPA) set up a financial education programme for schools, “El Riesgo y Yo” (“The Risk and I”). It involves 40 insurance undertakings and 164 volunteers and aims to give 2 500 teenage school students basic financial knowledge and insights into risk management.