Companies neglecting the impact of ESG on insurance

A general ignorance around the impact of sustainability on the role of insurers is in danger of compromising companies’ risk management plans, Swedish risk managers were told at the annual Swedish risk management association (Swerma) in Stockholm.

“There is a general ignorance about how sustainability is impacting insurers’ role,” said Marsh’s Federico Vagnoni. “This will affect the whole insurance industry.”

If companies are to avoid being passive observers in this development they must be more proactive in their sustainability plans. “Risk and insurance managers and brokers alike will either step up and absorb these concepts or they will be subject to what is imposed by insurers,” said Vagnoni.

Insurers have many of the same drivers as every other company when it comes to sustainability, said Vagnoni. For example, they have shareholders, regulatory obligations and a customer base increasingly interested in their service providers’ sustainability.

However, as providers of capital, sustainability is even more important, said Vagnoni. And for risk managers, it is important to note that sustainability will impact insurance placement. Those companies with better sustainability programmes where, for example, assets are not concentrated in one location, are likely to make fewer claims and will be treated better by their insurers, said Vagnoni.

“ESG is being factored into insurers’ business models and they are offering better D&O rates for those with a good ESG rating,” he said.

Similarly, a company with a clear decarbonisation programme will likely get better insurance coverage and attract more financing because it is better able to react to shocks, which in turn improves performance. It is a virtuous circle.

“Sustainability is therefore more critical than ever before, given that capacity is reducing across several lines wherever sustainability is a factor, wording is changing and insurers are asking for more information,” said Vagnoni.

“Companies should be using ESG data to support their insurance placement, and provide a systemised ESG report to underwriters to demonstrate the company’s commitment to certain aspects relevant to an underwriter,” said Vagnoni.

The priority for firms is to acquire better data because ESG performance is difficult to measure and people use different formats and methods. “ESG is at a crossroads, with different methodologies and incomplete disclosure. Companies should own this topic rather than be subject to it.”