Insurance and reinsurance activities

As required by the Delegated Regulation, insurance companies are using state-of-the-art techniques to model climate risks.

In PZU, climate risks and extreme climatic events are analyzed under the calculations covered by the standard formula (flood, hurricane), as well as under ORSA (flood, fire for the largest exposures in forested areas including agricultural fields). Under ORSA, PZU SA conducts stress tests, as well as sensitivity analyses that include stress scenarios based on four NGFS scenarios. The mandatory ORSA projections also consider the impact of climate risks on PZU SA’s solvency position in the short-term 3-year perspective (a perspective consistent with business planning).

In addition, PZU has an advanced flooding risk model that was developed in cooperation with the IMGW. The model uses hydraulic modeling to propagate water surges across Poland. PZU applies this model to its insurance activities related to the taxonomy products it offers. The flooding risk model is used in business processes in particular in the underwriting process for corporate clients, as well as in the pricing process for consumers and small and medium-sized enterprises for insurance in the line of fire and other property damage and supporting risk transfer solutions within the meaning of the EU Taxonomy.

According to the requirements of the Delegated Regulation, in the scope of products that are related to climate risks, the insurance companies have to:

• analyze clients’ interest in protection from climate risks and address them accordingly in product offerings;
• apply preferential pricing terms for clients that encourage them to reduce or prevent the effects of climate risks. Such incentives can be, for example, discounts for certain client activities;
• inform clients of the possible benefits of reducing or preventing the effects of climate risks; • educate clients on actions they could take to mitigate or prevent climate risks.

In PZU, products in the following lines were considered to be aligned with the EU Taxonomy:

• 7 – Insurance against fire and other property losses;
• 11 – Assistance insurance.

Insurance against fire and other property losses for businesses and consumers protect against climate risks. Under their terms, corporate and clients and SMEs can get a discount for fire protections, and SME clients and consumers can also get a discount for flood protections. In the case of corporate insurance, an individual risk assessment is made, in which all factors are taken into account, including any adaptive and preventive measures. For SME client and consumer insurance, discounts are included in the product’s tariff design. In all of the aforementioned types of insurance, clients in the sales and service process receive compendia or information with advice on how to get insurance against climate risks and their impact on the price or insurance cover. Compendia are also published at www.pzu.pl under the product tabs and the sustainability tab. These types of insurance are also accompanied by the possibility of purchasing additional risk transfer insurance as defined by the EU Taxonomy. For example, clients who choose to use PZU Dom can also extend insurance cover to, for example, the garage and other non-residential buildings in the event that the fire brigade floods the building during firefighting, and for home assistance such as hotel stays in the event of a fortuitous event, including those related to climate risks. For all of the products described above, PZU explores client interest in climate risk protection during the product development and sales process.

There is a declaration on the PZU website regarding the sharing of data with public administrations, as required by the EU Taxonomy https://www.pzu.pl/grupa-pzu/zrownowazony-rozwoj/taksonomia-ue.

In accordance with the requirements of the EU Taxonomy, PZU reports that it has a procedure for handling large-scale claims. “Crisis management procedure in claims handling” applies to mass property damage resulting from, among other things: flooding, hurricane, flood, heavy rain, hail, snow, lightning surge, effects of winterkill, drought and earthquake.

This procedure provides additional resources for largescale incidents to ensure a high level of claims handling in terms of quality and timeliness. This procedure applies to all taxonomic products and complements the high standards of claims handling.

In accordance with the requirements of the EU Taxonomy, the principle of “Do No Significant Harm” is included in the premium calculation. Client activities related to the “extraction, storage, transportation or production of fossil fuels” and the insurance of “vehicles, property or other assets for such purposes” were identified on the basis of the Polish Classification of Business Activity (PKD), and in a few cases at the contract level. Insurance against such activities is excluded from the calculation of taxonomic indicators.

PZU calculates insurance taxonomic indicators only on the basis of products that meet all the requirements of the EU Taxonomy, taking into account exclusions related to the “Do No Significant Harm” principle. According to the European Commission’s publication of a preliminary interpretation regarding the implementation of Article 8 of the EU Taxonomy in the context of the disclosures required by the Disclosure Delegated Act, dated 21 December 2023, only the portion of the premium that covers climate risks was included in the calculation. This portion was estimated for each taxonomic product based on the share of damages that result from climate risks in all damages over the past 10 years.

Taxonomy analysis of reinsurance activities was limited to intragroup activities. PZU does not have relevant data for non-group activities.

The PZU Group’s potentially taxonomic activities are mainly reinsured against fire and other property damage. In addition, close cooperation between the insurer and reinsurer on climate risk modeling ensures that risk modeling and product requirements are met. The intragroup activities assume that reinsurance of premium from products that meet all the requirements of the EU Taxonomy is also the basis for meeting the product criteria of the EU Taxonomy for reinsurance. The data sharing declaration published on PZU’s website also includes data on its reinsurance activities. PZU also confirms the handling of claims in reinsurance in accordance with the requirements of the EU Taxonomy.

PZU relies on product solutions taking into consideration evolving environmental needs. The PZU Group appreciates that it is necessary to switch to a low emission economy to stop climate change. That is why businesses investing in renewable energy sources can utilize products and services that will support decarbonization: among others, low emission transport, environmentally-friendly photovoltaic installations, heat pumps, small and large wind farms. When designing products, PZU considers ESG elements resulting from amendments to the Insurance Distribution Directive or the EU Taxonomy.

Sustainable development issues are also important in relations with the PZU Group’s clients and have been defined in the business strategy. The PZU Group supports environmental protection initiatives. It also wants to support entities that are undergoing an energy transition by taking the following into account:

• financial market participants – the PZU Group is extending the offering of mutual funds to include ESG factors, it is also developing a long-term strategy to develop its sustainable portfolio and it is consistently expanding its investments in the green sectors;
• retail clients – the PZU Group is developing its sustainable insurance offer customized to their individual needs;
• corporate clients – the PZU Group supports entities undertaking measures conducive to sustainable energy transition and conducts ESG assessments of key corporate clients;
• non-governmental organizations – the PZU Group wants to be a partner in social, economic and climate activities.