Carriers’ green credentials mounting factor in buying decisions

The green credentials of insurers are being factored into buying decisions and will become more and more important for clients, partly fuelled by regulation, experts told those gathered at Commercial Risk’s latest ESG event, but they made clear that the issue remains secondary to the biggest factors. Attendees also heard that insureds are only likely to get underwriting credit for their ESG efforts if they directly reduce the risk. And the experts said it remains difficult to cut through all the ESG ratings and data out there, but believe there is some help at hand from the Task Force on Climate-related Financial Disclosures (TCFD) and, potentially, new ESG reporting rules. Ryan Bond, head of climate and sustainability insurance innovation at Marsh, said that insurers’ stance on ESG does now come into purchasing decisions among the broker’s customers. But he said the issue is often not at the top of list. “Part of the equation when a customer is deciding to buy is, are they going to buy a policy that is more expensive with lower coverage but comes with green credentials? So probably not at this point. So that ESG decision criteria isn’t quite in the top three or four criteria currently,” said Bond during our ESG Insight & Intelligence Conference 2024 in London. Several insurance buyers in the room said they look at insurers’ green credentials in the buying process. And Gabrielle Durisch, global head of ESG and sustainability solutions at Allianz Commercial, said this issue is only going to become more and more important for clients as initiatives like the German Supply Chain Act force companies to start reporting on their supplier ESG commitments. This will include insurers. Bond said that while the direction some insurers are moving in on ESG as they develop a net-zero underwriting strategy is clear, this doesn’t apply to all carriers and across all regions of the world. This creates some confusion for buyers who really want to know how ESG underwriting will affect them, what it will mean for capacity and how they should interact with a particular insurer. “That is becoming more understandable as the policy holders and the underwriters engage,” he told delegates in London and those listening online. But risk managers have long complained to Commercial Risk that it is unclear what their ESG data is used for by insurers, and complain that they don’t seem to be getting rate reductions for supplying the information. The short answer is, perhaps understandably, that companies will only be given rating credit if ESG actions reduce the risk exposure. But work is underway to further links between ESG actions and risk reduction to help widen the scope for price reductions. “We still need to underwrite the risk. So if moves towards improving ESG or sustainability commitments are reducing that risk then that will be reflected in the price, but quite often there is a disconnect between some of the actions that need to be taken and the risk that is being transferred. So we still need to price appropriately the type of risk we are underwriting,” said Durisch. She added that carriers are looking at how they can better model the impact of ESG initiatives, such as investing in nature-based solutions, to quantify how they may reduce exposures. “We are starting to look at that,” said Durisch, “but we need to see the data and work with customers and brokers on understanding the impact”. Lasse Wallquist, head of sustainability at Swiss Re Corporate Solutions, said insurers are using ESG information from insureds to understand how their underwriting portfolio is transitioning towards net-zero targets. “Specifically, we at Swiss Re are looking at whether companies have set science-based targets for their transition plans, so that we can develop the portfolio as we work towards a net-zero underwriting portfolio,” he explained. Panellists were then asked how all the ESG data around the world held by insurers, delivered though ESG ratings or created by mounting disclosure demands, can be best harnessed and standardised so it becomes more useful for companies and other stakeholders. Giovanni Luca Firrito, head of customer partnerships at CRIF, which specialises in credit and business information systems, analytics, outsourcing and processing services, said it is difficult and complex to consolidate all the ESG information given the amount of different reporting frameworks. One solution is using advanced analytics that can help standardise the information to deliver consistency, he said. The other option is to create a more unified database that companies can contribute to, and this is where EU regulations are heading, he added. “The Corporate Sustainability Reporting Directive (CSRD) in the EU will create and support the implementation of that database. This information needs to be assured by auditors, so there will be a good level of reliability about this information. That will then be easily accessible by an API, for instance, to get information and use it for whatever use case is required. So I think regulators are going down that route at the moment,” said Firrito. Wallquist said there are hundreds of ESG ratings around the world that are measuring different things in different ways, so it is not easy to cut through and compare the information. But he said the TCFD, which has developed a framework to help public companies and other organisations across sectors and jurisdictions to more effectively disclose climate-related risks, can help bridge these gaps. But he doesn’t think new legislation in Europe, such as the CSRD, will necessarily mean insurers demand more standardised information. “These regulatory requirements like the CSRD require insurers to disclose materiality on various topics… but it doesn’t necessarily standardise the information that insurers are collecting from insureds. Some of the regulations require you lay out your transition plan, for example, but don’t necessarily specify how to do that. So the individual insurers will still go back to insureds and ask for, in our case, science-based targets, while others may be asking about emissions. So this shows there may be different approaches and the regulation per se doesn’t necessarily help,” he said.

Carriers’ green credentials mounting factor in buying decisions

Underwriting credit for ESG requires data-backed risk reduction

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