**5. The role of small and medium sized insurance enterprises in Europe**

Relatively little is, in general, known about CSR and ESG among small and medium sized enterprises (SMEs). Where SMEs are doing it, they may not use the language of CSR or ESG. Just as the best of SMEs are a source of innovation for business generally, so it can be assumed that the best of environmentally and socially responsible SMEs will offer CSR innovations. Efforts to engage more SMEs in CSR should be mindful of this fact. They should reflect the daily realities of SME life. They should work through channels as close to SMEs as possible, which SMEs already use and trust. This will involve a range of initiatives at local, regional, national, EU and sectoral levels. They will include initiatives from different stakeholder groups such as staff and consumers [36]. This is of special importance since the share of SMEs in total in the world is over 96%. This ratio is 99% in Germany, Japan, and France. Therefore, the place of SMEs in the economy is very important in general. It is known that SMEs play an important role in helping economic and social developments of countries as they rapidly adapt to the changing market conditions, have flexible production structures, achieve balanced growth among the regions, and help reduce unemployment [18]. In the insurance sector, typical SMEs are mutual insurance companies that reflect the original idea of insurance at best. Many of them were already founded in the late middle and early modern age as guilds or friendly societies in the Netherlands, Germany, France, England, and later, also in Northern America [37]. These institutions probably reflect the original insurance idea of a humanitarian protection against life or business existence threats at its best. In Germany, 241 out of a total of 535 insurance companies were organized in the form of a mutual company in 2019, which corresponds to 45% in number, although their share in the total premium income was only 14.7% [38].

With respect to ESG criteria, mutual SMEs can play an important role without much effort. We discuss several suggestions in more detail in the following section.

#### **5.1 Environmental**

A careful asset management can concentrate on investments that are veritably Taxonomy-aligned ("green assets"). However, there is a delicate balancing act between risky assets which require additional solvency capital according to Solvency II (like investments in alternative energy supply) and less risky assets, which are probably not, or only in part, Taxonomy-aligned (like government and related bonds).

A new initiative that has come up recently is a direct sponsorship of local environmental projects (e.g. planting trees in the company's environment) or the establishment of a "green" non-profit foundation that provides financial resources for various local and cross-regional programmes that are not only restricted to environmental aspects but also to SG. Such a foundation has been incorporated recently by the GVO Mutual Insurance Company. The idea here is to donate regularly a certain monetary amount (say 1 Euro) per contract and year to the foundation. Similar activities can also apply to the company's head office building (green roofing, CO2 neutral energy supply, an improved heat insulation and other architectural aspects), the use of local supply chains for stationery and other office supplies, or an environmentally friendly car fleet.

But also, innovative insurance products can contribute to environmental protection and sustainability ("green insurance"). For instance, concerning the household contents insurance, the policy could guarantee a replacement of damaged technical devices with corresponding devices of the highest available energy efficiency class,

#### *Insurance Business and Sustainable Development DOI: http://dx.doi.org/10.5772/intechopen.96389*

e.g. refrigerators, washing machines, stoves and other appliances. In Germany, it has turned out that such a kind of insurance products is appealing more and more to the younger generation who has a higher mental affinity to environmental and climate protection. Seemingly, this clientele is also willing to pay a slightly higher premium in the awareness of a constructive contribution to environmental and climate protection.

Similar reflections also apply to agricultural insurance products, which are for a large part, handled by mutual insurance companies. The idea here is a kind of premium gratification system for countrymen who, e.g., avoid excessive chemical fertilizers or who care responsibly about their livestock breeding.

A completely new generation of insurance products concerns the private traffic sector. Due to new technologies like blockchain [39], it becomes possible to create car liability insurance products where the premium depends on the individual driving behavior ("pay how you drive") [40]. This could give incentives to car owners to adapt their driving behavior to the environment (less fuel consumption, less deterioration). Even if insurance SMEs are, in most cases, not able to handle the technical challenges connected with blockchain products themselves, they can easily serve as insurance brokers. A new line of insurance products emerges actually with bicycle insurance comprehensive coverage in Germany, in particular for pedelecs and e-bikes. This might give incentives to people to abstain from using cars with combustion engines in cities in favor of environment-friendly mobility.

#### **5.2 Social**

SMEs are in general frequently characterized by flat management hierarchies. This facilitates to a great extent precaution measures for their employees, guarantees of equal opportunities and of workforce diversity, safety of workplaces, respecting a worker's council and the implementation of a staff unit for conflict management and whistle blowing.

On the personal side, SMEs can provide individual retirement arrangements, gratification programmes, support of continuing business education and honorary appointments, the establishment of an appropriate in-house television network for the employees, or in-house sportive activities within a general health programme. The GVO Mutual Insurance Company, for instance, sponsors general all sportive activities of their staff in-house and outdoor.

Social aspects are also immanent in many insurance products like life, accident, health, business interruption, and complementary insurance contracts.

#### **5.3 Governance**

Although several legislative regulations prescribed by the European Taxonomy and Transparency Directive concern only large companies say with more than 500 employees, insurance SMEs can of course decide for a voluntary disclosure of their ESG activities, in particular when they pursue outstanding environmental sponsoring programmes, as e.g. the GVO Mutual Insurance Company does. Personally, a typically small and responsible Board of Directors of an SME can serve as business ideal for the employees, thus preventing stimulation of misconduct and deception. Further, sustainability aspects can and must become an indispensable part of the whole business culture, which, in particular, insurance SMEs can easily implement due to their flat business hierarchy. This concerns, besides business processes and service regulations supervised by the CEOs, the complete in-house staff as well as the employed field staff or sales department and the IT department of the company.

It is important to state that an implementation of all of the aforementioned examples will in general not lead to an increase in the company's risk profile which would be crucial in the light of the Solvency II directive.
