Green Insurance

Sustainability and environmental, social and governance (ESG) risks and factors are a significant exposure and opportunity for the insurance sector. As risk managers, insurers play a central role in identifying and measuring material ESG risks, particularly climate change. The insurance sector must adapt and innovate while factoring risks associated with climate change and sustainability into business models and strategy.

The insurance sector in its role as both a financer and a provider of insurance products, is also uniquely placed to play a major role in driving the move to a low carbon economy.

There is a huge amount of international and European climate action and sustainability-related opinions, principles, guidance and initiatives of relevance to the insurance industry. Those issued by the UN, IAIS and EIOPA are examples. The Central Bank of Ireland has declared climate change and sustainability as key regulatory and supervisory priorities for 2021 and has recently established a Climate Change Unit.

Legislative, regulatory and policy initiatives under the EU Action Plan on Sustainable Finance impact on the insurance sector. The Sustainable Finance Disclosures Regulation (Regulation (EU) 2019/2088) and Taxonomy Regulation (Regulation (EU) 2020/852) require in-scope insurance firms to comply with disclosure requirements on websites, in pre-contractual disclosures and financial statements. The first phase of the disclosure requirements took effect on 10 March 2021. Analysis of insurance firms' business models and products is key to establishing what disclosure requirements apply.

Addressing climate change and sustainability matters will require an integrated approach and input from a variety of business functions. For example, it will touch on areas including investments, underwriting, capital, risk management, governance and own risk & solvency assessment (ORSA) processes to name just a few.

Notably, the European Commission adopted a comprehensive package of sustainability measures in April 2021. This included adopting two delegated regulations integrating ‘sustainability’ or ESG considerations/factors into the Insurance Distribution Directive (IDD) and Solvency II regimes.

  • Key areas to be modified in IDD are: product governance requirements; suitability assessment for IBIPs; and conflicts of interest for IBIPs.
  • Key areas to be modified in Solvency II are: risk management; remuneration policies; and the prudent person principle.

The modified requirements are expected to apply from October 2022. Preparation work and analysis to ensure compliance should begin well in advance of that date.

ALG's Insurance & Reinsurance team is strongly placed to advise clients on sustainability and ESG matters. We have advised a mix of domestic and cross-border insurers and groups on a range of matters in this space.

Experience

  • SFDR disclosure obligations advices

    to insurance market participants and intermediaries

  • Climate change and sustainability governance advices

    and connected considerations and recommendations to insurers

  • Solvency II-related issues (e.g. ORSA) advices

    to domestic and cross border insurers

  • Underwriting/covering of brown industry policyholders advices

    to insurance companies

  • Advice on ESG-related matters connected to listing rules and expectations

    to insurers, reinsurers and underwriters

  • ESG and climate related developments, actions, themes and trends advices

    to insurance market participants and intermediaries