In 2012, the UN launched the Principles for Sustainable Insurance (PSI) as a global framework for the insurance industry to “address environmental, social and governance risks and opportunities”. In recent times, the insurance industry has seen the increasing momentum in interest and commitments insurance companies are making regarding Environmental Social & Governance (ESG). The trend has risen sharply on the back of the climate conferences such as COP26 and the release of ICA’s Climate Change Roadmap in late 2022. According to recent estimates, almost $40 billion insurance claims are paid out each year across Australia, so managing the risk of items going to landfill is becoming an agenda item which we believe will gain momentum and importance.

In recent times, the insurance industry has seen the increasing momentum in interest and commitments insurance companies are making regarding Environmental Social & Governance (ESG). The trend has risen sharply on the back of the climate conferences such as COP26 and the release of ICA’s Climate Change Roadmap in late 2022.

According to recent estimates, almost $40 billion insurance claims are paid out each year across Australia. Managing the risk of items going to landfill is becoming an agenda item that will gain momentum and importance.

A quick recap on sustainable insurance

Sustainable insurance is a strategic approach where all activities in the insurance value chain are done in a responsible and forward-looking way by identifying, assessing, managing and monitoring risks and opportunities associated with environmental, social and governance issues. In our discussions with insurance clients, there is one thing we hear often; a recognition that ESG is not a compliance activity; the need to make permeable changes to the risks faced by society, creating transformative outcomes through a series of small, practical steps is becoming an expectation. We expect to see more interrogation of insurers and their practices in the future by customers and other stakeholders.

With S&P reporting that more than 80% of its ESG ratings are neutral, is it a matter of making some incremental but meaningful steps at a grass roots level to start to effect change?

Insurance salvage as a critical function in the insurance value chain

According to Statista, the global market for insurance salvage and reinsurance in 2017 was worth $33.2 billion USD, with this figure expected to grow by 5% annually until 2030. As such, it’s important that insurers are able to select the best possible solutions for their clients’ needs and commitments—in both technical and non-technical areas. Salvage presents a tangible opportunity to embed sustainable practices into the insurance claim process.

Embedding ESG issues into decision making on loss recovery may not be as difficult as once thought

Environmental, social and governance risk factors are increasingly being considered as part of the selection process for potential salvage partners.

Research has shown that businesses are increasingly looking to incorporate ESG into their procurement practices in selecting and managing partners. In a recent survey by PwC, 82% of respondents said they were integrating ESG into their supply chain risk management strategy, while 81% said they were incorporating ESG into their supply chain due diligence. Michael Hayes, COO of Hilco APAC has seen this many times over the 35 years as an insurance salvage specialist.

Thinking of salvage as part of the product value chain with a circular economy mindset is key

Hilco is regularly asked to present sustainable solutions for salvage; this doesn’t present any concerns for the team, having been advocates of the circular economy now for over 30 years, carving out a specialty in keeping assets in utility. Renewed, repurposed and reimagined uses for assets delivers millions of dollars back to clients to offset write offs, overheads and fund new ventures.

Brokers, MGAs and insurance companies can all use the circular economy as part of the ESG process. By recycling more assets, claims can be much,” greener”, which not only offers cost savings, but less reliance on fragile global supply chains on new parts, plus the feelgood factor of ticking the sustainability box.

In an environment where traditional salvage decision making is driven by financial models only, there is an immediate opportunity to seek partnership with service partners that embed sustainable practices in their model in delivering that financial result.

The insurance industry can help minimise environmental, social and governance risks through smart salvage solution practices.

Management of environmental, social and governance risks are a part of the insurance salvage industry and selecting a salvage partner that specialises in sustainable solutions is a way to demonstrate the kinds of incremental steps that embeds in decision-making environment, social and governance issues. Considered salvage practices,  looking at circularity over traditional linear supply chain thinking can act as a integrator of ESG into the insurance value chain.