AXA Hong Kong & Macau (AXA), Marsh, and Link Asset Management (Link), with support from the Hong Kong Green Finance Association (HKGFA), today jointly released a white paper titled "Sustainability-Linked Insurance: Rewarding Climate Risk Adaptation". The white paper introduces Sustainability-Linked Insurance (SLI), an innovative property insurance solution that integrates the impact and mitigation of climate risks, to inspire wider adoption and investment in resilience building by rewarding companies for creative, proactive and ultimately sustainable actions.

Growing Financial Risks for Real Estate and Insurance

As extreme weather events become more severe and frequent due to climate change, Asia's real estate and insurance industries face significant financial risks, alongside emerging opportunities. The real estate industry is experiencing soaring insurance premiums, with significant hikes observed after events like Super Typhoon Mangkhut in 2018. Simultaneously, insurers are incurring higher losses, with total insured losses from natural disasters reaching US$140 billion globally in 2024.¹ While insurers have responded by raising premiums and imposing stricter terms, these measures are increasingly unsustainable.

From Risk Awareness to Rewarding Active Resilience

The white paper features a showcase of how Sustainability-Linked Insurance can create a win-win scenario for both industries, demonstrating how a proactive approach to climate resilience can unlock significant financial rewards for real estate companies. Traditionally, the response to extreme weather conditions has been reactive, focused on claims, loss absorbency, and anticipating inevitable premium increases. However, Link decided to reframe its strategy by adopting a fresh and unique approach. Instead of treating resilience as a cost, it considered it as an investment – one that could be quantified, optimised, and ultimately rewarded.

By assessing climate risk and making targeted resilience investments, Link, with the support of its insurance broker Marsh Hong Kong, achieved an impressive 11.7% reduction in property insurance premiums — significantly outperforming the industry’s ~3% average.² Even more importantly, Link negotiated an additional 7.5% premium reduction tied to its loss ratio, creating a direct financial incentive to invest in long-term climate preparedness.

AXA's Innovative Approach to Rewarding Climate Adaptation

Building on this successful case study, AXA is working to develop the first sustainability-linked insurance product in Asia. This innovative solution addresses the impact and mitigation of climate risks while rewarding and further incentivising companies' resilience measures. Key aspects of this solution include 1) a comprehensive climate and engineering risk assessment, 2) a set of sustainability-linked KPIs at peril basis defined and aligned between the insured and insurer, 3) a preferential treatment in coverage and premiums terms granted to the insured and finally, 4) periodic monitoring will be conducted to ensure pre-agreed KPIs will be achieved, with adjustments made as necessary, 5) insured companies continue to invest in climate change to enhance resilience and achieve KPIs.

AXA and Link have already successfully conducted a proof of concept at Temple Mall, demonstrating how its flood resilience measures can reduce potential losses by 10-20%. By integrating risk identification, targeted mitigation and transparent insurer engagement, AXA's SLI product aims to transform resilience from a defensive measure to a financial advantage for both insurance companies and property owners in Asia.

Key Actions for Real Estate Leaders and Insurers

The white paper outlines four key actions for real estate executives and insurers to drive the adoption of sustainability linked insurance. For real estate leaders, these actions include establishing a robust action plan for physical climate risk resilience, engaging internal teams and insurance brokers, quantifying and communicating climate risk exposure and adaptation efforts to the insurance market, and leveraging insurance brokers to negotiate better terms. For insurers, key actions include engaging real estate clients to obtain detailed information on climate adaptation efforts, formally incorporating and incentivizing resilience activities into the underwriting process, refining underwriting methodologies to account for changing weather and climate patterns, and innovating product design to optimise coverage, terms, and premiums to better manage climate-related risks.