Insurance Business and Sustainable Development

In this study, we will discuss recent developments in risk management of the global financial and insurance business with respect to sustainable development. So far climate change aspects have been the dominant aspect in managing sustainability risks and opportunities, accompanied by the development of several legislative initiatives triggered by supervisory authorities. However, a sole concentration on these aspects misses out other important economic and social facets of sustainable development goals formulated by the UN. Such aspects have very recently come into the focus of the European Committee concerning the Solvency II project for the European insurance industry. Clearly the new legislative expectations can be better handled by larger insurance companies and holdings than by small- and medium-sized mutual insurance companies which are numerous in central Europe, due to their historic development starting in the late medieval ages and early modern times. We therefore also concentrate on strategies within the risk management of such small- and medium-sized enterprises that can be achieved without much effort, in particular those that are not directly related to climate change. We start this study with a general overview of the UN sustainable development goals and their implementation in the financial sector world-wide, with a major focus on climate change aspects of investments in a lower carbon economy and economic support of underdeveloped countries that were prevailing until very recently. Although the insurance sector can be considered as a particular branch of the finance industry there are several particularities which need a separate consideration. In the first place, insurance provides a protection of individuals and companies against severe material and non-material losses. Therefore the insurance premiums must be invested safely, in particular under actual insurance regulations like Solvency II. But the insurance industry is also faced with new emerging risks due to climate change, in both the life and non-life sector. Moreover, the European development of insurance regulation has very recently focused also on other sustainability aspects than those related to climate change. We discuss this aspect of risk management in a separate section of this study. Finally, we discuss in detail appropriate strategies how small- and medium sized insurance companies in Europe can handle the new challenges of insurance supervision without too much effort. Our suggestions are mainly driven by own experiences from practice.