What goes around comes around: Insuring the circular economy

However, the recycling business has a poor record with fire hazards and is difficult to insure. Difficult, but not impossible. Swiss Re, in cooperation with AXA, Ikano, and Ingka¹ (supported by BCG) have jointly developed a report describing how increased focus on risk prevention and mitigation, alongside close collaboration with the insurance industry, can be a catalyst in supporting the much-needed expansion of the sector.

Recycling rates are frustratingly low, despite being a key enabler of circular business models. Global recycling must grow three-fold over the coming decade for consumption to remain within planetary boundaries. 

One key challenge – recycling can be a fire hazard. Large piles of combustible materials, from paper to clothes to electrical goods, are stockpiled awaiting processing. Many warehouses and facilities have been lost to fire, making insurers wary of providing cover. Expensive or limited insurance impairs balance sheets and discourages new investors. 

It does not have to be this way, as described in this report. Recyclers can go beyond minimum building safety standards in creating new risk prevention and protection protocols. They can work together with their re/insurer in risk mitigation measures, providing greater certainty for their financial backers. Insurance will be a vital catalyst for the sector's growth. 

Current linear business models cannot remain in place much longer. Circular business models are crucial if we want to reach sustainability targets. It is imperative on us (recyclers, re/insurers and financial services providers – see Figure 1) all to promote recycling, and we hope this report is one small step in contributing to this goal. 

¹Ikano and Ingka represent two of the several IKEA retailers.