Mutual insurance sector has crucial role in green transition
As European energy prices continue to soar due to Putin’s weaponisation of Russian gas, the EU is developing a major intervention to ease the financial burden at home. Brussels is planning to impose a “solidarity contribution” on the fossil fuel industry to the tune of €140 billion, essentially taxing excess profits for the 2022 fiscal year generated by the post-pandemic economic recovery to fund government financial support, energy generation and energy saving interventions. As European Commission energy spokesman Tim McPhie has highlighted, the long-term solution to European energy security is not simply replacing reliance with Russian gas with reliance on another supplier, but ramping up domestic production of alternative sources.
The energy crisis is posing serious short-term challenges, but could ultimately accelerate the green energy transition, as governments and companies increasingly reshore supply chains domestically or “friend-shore” them to allied countries. These structural changes to the energy market will create new opportunities, as well as new risks—risks which the insurance sector will have an increasingly important role in mitigating. And with its long-term strategic outlook and values-based approach, mutual insurance firms are particularly well-placed to drive the greening of Europe energy.
Insurance as driver of stronger, greener economy
While the effects of climate change had already made clear the urgency of shifting away from fossil fuels, disruption from the war in Ukraine has made this necessity more tangible. However, the construction and operation of the new energy assets that will fuel this shift come with risks and financial disincentives for businesses, investors and consumers.
A new report from the Swiss Re Institute has identified the insurance industry’s potential to facilitate the green transition by covering these risks and obstacles. The insurance sector has already established itself as a driver of economic growth through providing protection that incentivises high-risk, high-yield businesses which create jobs in communities, and its protection of renewable and low-carbon energy infrastructure – including solar, wind, hydroelectric and nuclear – will significantly enhance both its socioeconomic and ecological impact.
In recent years, there has been a growing awareness in the insurance industry of the need for developing innovative new products to fuel the low-carbon future, including tailored solutions for green energy developments, sustainable buildings, clean transport and renewable energy investments. Beyond green insurance coverage or even cutting operational carbon footprint, insurance firms also act as important impact investors in green energy infrastructure and other sustainable interventions, thereby helping to accelerate the clean energy transition.
Mutual insurance companies leading the way
Particularly encouraging green interventions are emerging in the mutual insurance sector, whose firms are owned by policyholders instead of shareholders, like stock insurance companies.
For example, Covéa, a leading French mutual insurance group, is developing tailored insurance products to help individual and business clients contribute to energy decarbonization and efficiency, including via home and business green retrofitting, electric vehicles and car repairs with reused parts. Capitalising on its role as an investor, Covéa also funds sustainable projects and businesses that help drive the energy transition. Through “Covéa Solis,” – one of its four environmental investment funds – it invests in European clean energy and energy efficiency projects, while its sponsorship of Collège de France’s “Together for a Sustainable Future” initiative supports innovative research for low-carbon projects.
Achmea, a Dutch insurance company and Europe’s third largest mutual, has also taken an active role in the green transition, driven by the same socially responsible values. Through its Green Finance Framework, Achmea ensures that funds raised from the issuance of green bonds are invested in sustainable energy projects, specifically in enhancing the energy efficiency of residential and commercial buildings in the Netherlands. What’s more, as a leading party to the Dutch Agreement on Energy for Sustainable Growth, Achmea invests in renewable energy projects and helps investee companies cut their carbon emissions.
In terms of the broader sector-wide impact, members of the International Cooperative and Mutual Insurance Federation (ICMIF) had invested $576 billion in sustainable investments as of 2020, widely surpassing a target of $400 billion set in 2014 for the entire insurance industry. What’s more, in 2020, ICMIF organisations boosted investment in renewables by over 100% compared to 2019, helping to maximise the mutual insurance industry’s impact on the green energy transition.
Sustainable difference of mutual insurance model
Given the long-term nature of this transition, mutual insurance firms are particularly well-positioned to contribute.
Mutuals have a key, fundamental advantage over stock insurance firms, which is that they are driven by the interests of their members and policyholders. In short, the interests of their governing bodies and customers are aligned, meaning that mutuals can use their deep knowledge of policyholders’ needs to develop tailored solutions at affordable prices. Conversely, stock companies are driven by the interests of their shareholders, forcing them to focus on short-term profits and paying dividends, which also has the effect of creating a divide between the interests of shareholders and clients.
The lack of pressure from a short-term profit focus and frequent dividend payments frees mutuals to adopt a longer-term, people-focused approach, both in terms of management and investment strategy. Crucially, this approach requires mutuals to build and maintain strong financial positions, allowing them to make long-term impact investments in green energy solutions while reassuring policyholders that they will be supported when disaster strikes. What’s more, the energy transition will generate high revenues from new insurance products that the sector will be able to reinvest in renewable energy solutions and enhanced policyholder protection against increasingly frequent climate risks.
With climate change and the deteriorating European energy crisis creating an urgent need for domestically-produced, green energy, the insurance industry has emerged as a crucial component of the solution. By developing new coverage for green energy supply chains and energy-efficiency interventions, as well as capitalising on their large financial reserves to invest in sustainable projects, mutual insurance firms can complement EU energy security and decarbonisation initiatives while creating good job opportunities for local communities.