FERMA Issues Principles for Sustainability-Linked Insurance

The Federation of European Risk Management Associations (FERMA) has published its Sustainability-Linked Insurance Principles (SLIPs), a voluntary framework intended to support the development of credible, consistent, and transparent sustainability-linked insurance (SLI) solutions across the insurance market.

As SLI products gain traction, insurers and policyholders are increasingly linking insurance terms—including pricing and coverage features—to the achievement of predefined sustainability objectives. FERMA said the new principles are designed to address concerns that inconsistent practices or unsupported sustainability claims could weaken confidence in the market.

The guidelines provide a framework for designing, implementing, and evaluating SLI solutions. They establish expectations for key performance indicators (KPIs), sustainability performance targets (SPTs), contractual structures, reporting requirements, and verification processes.

"Sustainability-linked insurance must be built on clarity, consistency, and purpose," Philippe Cotelle, president, FERMA, said. "By establishing robust principles, we can ensure these solutions are credible, measurable, and aligned with recognized sustainability goals, while avoiding fragmentation across the market. In doing so, FERMA's aim is not only to help strengthen these insurance frameworks but also empower risk managers and insurers to play an increasingly meaningful role in advancing resilience, supporting long-term value creation, and contributing to a more sustainable global economy."

The SLIPs are organized around a five-step approach designed to help integrate sustainability considerations into underwriting practices.

The first step focuses on selecting KPIs that are material to an organization's sustainability strategy, business activities, and risk profile. These indicators should be measurable, relevant to the insurance coverage, and may address environmental, social, or governance factors.

The second step calls for the establishment of SPTs that are specific, measurable, time-bound, and aligned with broader sustainability strategies. FERMA said the targets should be ambitious and exceed business-as-usual expectations.

The framework's third component links insurance contract terms to sustainability performance. Potential mechanisms include premium adjustments, bonus-malus structures, deductible modifications, or contributions to resilience initiatives.

The fourth step emphasizes transparent reporting and disclosure, including annual updates on KPI methodologies, performance against targets, impacts on insurance terms, and any material changes or exceptional events.

The final step requires independent third-party verification of performance against KPIs and SPTs to support accuracy, reliability, and credibility.

FERMA said the five elements are intended to create a consistent framework that promotes transparency and aligns underwriting practices with sustainability objectives.

Robert Eigenheer, head of corporate finance, and Alexandre Mazaud, project lead sustainability-linked insurance at Swiss Federal Railways (SBB), contributed to the document and provided practical examples of SLI applications.

"The strength of the Sustainability-Linked Insurance Principles lies in their practicality," Mr. Eigenheer said. "By guiding users through a clear five-step process from selecting meaningful KPIs to independent verification, they provide a structured yet flexible pathway for embedding sustainability into the insurance ecosystem, while delivering measurable outcomes and greater transparency across the insurance lifecycle. This benefits the entire insurance sector, which will be among the sectors most affected by the negative impacts of climate change."

Read Sustainability-Linked Insurance Principles—Guidelines for Voluntary Procedures.