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How are insurers supporting the circular economy?

More businesses are embracing the principles of the circular economy in the pursuit of better environmental outcomes and as part of the push towards a net zero economy by 2030. Insurers are working alongside these businesses to support their efforts to achieve a clean, green future.

The circular economy is a business model through which manufacturers consider the whole of a product’s life cycle, or multiple life cycles, during design. The idea is to maximise a product’s use through recycling and refurbishing, to help reduce the use of natural resources.

AXA is one insurer that is becoming an active participant in the circular economy. It has said, “ourambition is to be the collaborative economy’s principal partner.”

To this end, since 2015 it has been the global insurance provider to the BlaBlaCar car sharing platform and it has subsequently provided cover to other businesses that are part of the sharing economy, including OuiCar, Uber and Deliveroo. AXA cites Ernst & Young research that indicates one shared car can replace between 9 and 13 individually owned vehicles as evidence to support its foray into this area.

The insurer says, “the circular economy offers an opportunity to insure new activities related to product disassembly, refurbishing and recycling, as well as to imagine new kinds of insurance to promote the circular economy.”

Insurance supports net zero

The insurance sector is also an important contributor to the move towards a net zero emission economy and the circular economy is part of that.

Eight leading insurance companies including AXA and Allianz have formed the Net Zero Insurance Alliance to work towards net zero greenhouse gas emissions by 2050. Insurance and reinsurance companies recognise they have an important part to play in achieving the transition to net zero emissions economies. Many have ratified the Paris agreement, which is an international climate change treaty to keep limit global warning to two degrees Celsius above pre-industrial temperatures.

“Insurers are playing a more active role providing cover for businesses that are part of the circular economy.”

Better environmental outcomes after disasters

Insurers are exploring other ways to achieve better environmental outcomes after a claim. Insurable events and natural disasters often involve significant damage to property. They increasingly want to make sure materials are disposed of in an environmentally-friendly way and recycled where possible.

An Insurance Council of Australia (ICA) spokesperson explains residential waste removal and disposal is a key part of the overall claim cost. “By working with suppliers across the claim supply chain, insurers can contribute to a broader level of decarbonisation beyond their own operational footprint.”

If you need to make a claim on your insurance policy, it’s important to contact your insurer who can provide guidance about safe and environmentally-friendly disposal of rubbish and other damaged goods. Your Steadfast broker can assist you through this process.

Non-fungible tokens are units of data stored on a blockchain, which is an immutable digital ledger for storing information. Proponents of NFTs argue they intrinsically provide proof of ownership. Examples of NFTs include digital artworks, domain names and in-game items.

As a new invention, NFTs are a highly contested area and there are question marks over the veracity of these instruments. People who buy and sell these assets treat them as a unique store of value. However, there is nothing to stop someone creating an identical copy of an existing NFT. There is also very little understanding about how copyright might work in this area.

Insurance options for NFTs

At the moment, there are very limited ways of insuring NFTs. At time of writing, there was no evidence of anyone making a successful claim against a policy written over an NFT.

It’s worth noting some commentators suggest the instruments don’t require cover. This is because NFTs have intrinsic insurance because they cannot be duplicated or stolen unless the NFT’s owner gives a third party their private keys to access them.

There’s only a handful of specialist insurers that cover NFTs, with no appetite for this risk among larger insurers so far. In particular, the increasing incidence of scams involving NFTs are also unpalatable to mainstream insurers.

“Insurers in general are less inclined to provide cover over digital assets, or are only prepared to provide restricted cover,” says Michael White, Steadfast’s broker Technical Manager.

“Over time, Stroud expects insurers will be prepared to provide cover over NFTs, especially if asset owners put in place strategies to mitigate their risks.”

The future for NFTs and insurance

NFT educator, adviser and collector Amy Marie Stroud notes this is an area that is still like the wild west, with no legislation or protections.

“There needs to be further education, both for end users and insurers, as there is limited understanding of the NFT sector unless you’re deep in it every day.”

Over time, Stroud expects insurers will be prepared to provide cover over NFTs, especially if asset owners put in place strategies to mitigate their risks. This might include the use of secure cold wallets, which store digital assets offline, as well as air-gapped wallets, which isolate devices where NFTs could be stored from an unsecure network. Digital wallets that require multiple signatures to access their contents are another option.

“Insurers will have to decide how they cover the human element of hackings and phishing scams, which account for most wallet compromises. Insurers may choose to only cover selected projects to reduce their risk,” says Stroud.

“Large scale, custodial marketplaces such as Coinbase NFT are also likely to play a role. Most cryptocurrency investors leave their funds with custodial exchanges such as these, which are usually protected by insurance,” she adds.

While it’s still early days for insurance for NFTs, it’s an area that will grow over time. Talk to your Steadfast broker for advice about protecting your digital and other assets.

The good news for small businesses is premiums are stabilising, after rising last year in the wake of natural disasters like bushfires and floods, as well as COVID impacting insurers, which pushed up prices.

Insurers’ costs rise

According to KPMG Australia’s General Insurance Dashboard, gross written premiums, which is the total value of the policies written by insurers, minus costs such as GST and stamp duty, rose by 5.9 per cent in 2020. This reflects changes in the market, for instance reduced demand for some types of insurance such as compulsory third party (CTP), travel and employers’ liability policies.

The large volume of business interruption claims thanks to the impact of the pandemic on small businesses has also led to a rise in claims’ pay outs.

“There have been significant premium increases over the last few years in the small business market, but this is stabilising now,” says Steadfast Group broker technical manager Michael White.

Nevertheless, small businesses are paying a high price for insurance in some areas. For instance, builders and those in the trades find it hard to take out affordable public liability cover. Business owners in this position should talk to their Steadfast insurance broker about different options available to them. Property insurance is also relatively expensive.

KPMG’s research shows how much certain premiums have jumped over the past year, with the price of commercial property insurance rising 12.5 per cent over the past year and the price of professional indemnity insurance increasing by 22.2 per cent over the same period.

“It’s also an idea for small businesses to work with an insurance broker to ensure they can access the right insurance, including public liability,” says White.

“The good news for small businesses is premiums are stabilising”

One option for businesses that are finding it hard to get cover is to work with a mutualwhich is another type of risk management . There are pros and cons of choosing this approach. While it does offer businesses that find it hard to secure insurance an alternative way to get protection, mutuals have discretion about paying claims.

“It’s important to understand how mutuals work before taking out cover with them,” White explains.

This is especially critical for smaller businesses that rely on insurers to pay their claims swiftly so they can resume trading as quickly as possible after an insurable event. Whereas larger businesses may choose to do business with a mutual if they have more resources to continue trading even when they are waiting on a sizeable claim to be paid.

Working with an insurance broker is one of the best ways to ensure no matter what your circumstances, there is a range of options to consider for your insurance cover. Contact us today to find out more.