ESG underwriting debate hots up as GVNW gathers in Munich

The German and wider European insurance market needs to seriously up its game on the increasingly important matter of ESG, and particularly how it will impact commercial and industrial insurance programmes.

The big insurers are keen to stress that they are playing their role in the whole ESG effort and transition to net zero through their huge investment portfolios.

They are also being pressured to pull capacity from new and even existing fossil fuel projects as action groups ramp up reputational pressure and legal action.

But exactly how the ESG performance of corporations will impact the attitude, pricing and capacity provided by underwriters is a much murkier question.

Leading German risk and insurance managers who took part in this year’s Risk Frontiers Europe survey shortly before the GVNW Symposium in Munich, were divided over how ESG is already impacting the underwriting strategy of insurers.

Some are frustrated by the questions increasingly being asked by carriers and have no idea how it is being used, if at all. More transparency and consistency is needed, and perhaps a market-wide effort to come up with common standards is the way forward, suggest some.

Others say that they have seen minimal, if any, impact on their programme or discussions with insurers, suggesting that ESG is really a bigger question for risk and compliance departments rather than insurance.

A similar discussion held with leading Dutch risk and insurance managers hosted at the Narim congress earlier this year, reinforces the idea that the approach of insurers to ESG is far from perfect. The Dutch agreed with most of the Germans that serious and collective work is needed to clarify this whole area and how it may impact future insurance renewals.

ESG is clearly rapidly shifting onto the agenda of many risk and insurance managers across Europe but exactly how it is going to pan out from an underwriting perspective remains unclear.

Patrick Fiedler, president of the GVNW, pointed out that this is clearly a work in progress, but stressed that given the potential administrative burden for insurance managers, it needs a clearer and more positive approach.

“From a GVNW perspective, we gave a press statement on ESG after our meeting in May and we established a new ESG working group. Our members gave us the renewal feedback that while ESG questions are on the rise, the relevance of the responses remains unclear. In some very limited, individual, strange cases, ESG arguments led to denial of insurance cover, whereas overall the topic has only been perceived as an administrative burden. Is this how we want to make an impact as an industry?” he said.

“Our association’s key demand is to move the ESG topic away from a negatively loaded image, to positive, stimulating discussions. We should more focus on how we can contribute to ensure the required transformation. We’d love, for example, to see a competition of insurers to achieve the highest positive impact by insuring projects with the highest effect on reduction of greenhouse gas emissions,” added Fiedler.

Fellow GVNW committee member Swen Grewenig agreed that serious work is needed in this critical area. For now, it is very much a “one-way street”, with underwriters asking the questions and not really explaining how the information will be used, he said.

Grewenig, along with many of his peers, would like to see this change and a more transparent process adopted with true dialogue.

“ESG has been present for quite a while already. Whereas it seems still to be a one-way street, ie insurers asking ESG-related questions and [without transparency] making the answers part of their underwriting decision. We would prefer to have a dialogue with the carriers in this context,” he said.

“We actually do not know exactly what the insurance companies do with ESG related information they are asking for directly from the insured or grab indirectly from public sources. However, an [allegedly] negative ESG assessment by insurers will have consequences in various lines of business,” added Grewenig.

The GVNW committee member generally views the rise of ESG as a positive thing but he is fearful about “excessive bureaucracy”.

“Many companies have looked after topics that are now labelled as ESG for many years already. With ESG these topics now may be tackled in a more structured way, which may allow for better decision making, transparency and risk mitigation. However, there is a risk of excessive bureaucracy,” he said.

Christian Böhm, managing director of insurance at global technology group Freudenberg and vice-chairman of the GVNW, also sees the rise of ESG as a positive development but has seen little impact on insurance negotiations so far.

“There is a special task force in the company that involves the insurance head regarding insurance-related topics. How does a good ESG strategy benefit a company and its risk profile? It will keep the company acceptable and attractive for customers, suppliers, authorities, and not to forget for its own employees. What impact does it have on your insurance programme, if any? So far, ESG did not play a big role in our discussions with insurers,” he said.

Matthias Beck, head of the group insurance department/risk management at the Würth Group, agreed with Böhm that ESG is generally a positive development from a risk management perspective but has, so far, had little impact on his insurance renewals.

“Through the risk management process, we have built a good and close relationship with our ESG colleagues and exchange ideas on a regular basis. So far, we have not identified any significant negative impact on our insurance programmes,” he told Commercial Risk.

The view from the Netherlands was similar, with leading Narim members also expressing frustration over the lack of clarity and consistency as ESG continues to rapidly evolve.

Jeroen Gruter, corporate insurance manager at Rotterdam-based financial services group TBI Holdings, said: “The true focus of ESG is operational risk management not insurance. ESG is driven largely by financial risk, which is a fundamental difference with insurance.

So far, the impact of ESG on insurance is limited, agreed other Dutch risk and insurance managers.

“I hear the word ESG used by the insurers but is it really applied in reality? They say they are asking for the information but I am not sure they are actually using it for now. I hear that some insurers want to know about your ESG strategy. They say they will be more active in future but not for now,” added a participant in the Narim roundtable.

Marc Heiligers of Akzo Nobel said that the whole ESG-based approach to underwriting is a serious work in progress. “I question if the insurers really take the ESG information we provide into account. They ask for our ESG reporting information. But do they really take that into account? I am not sure for now,” he said.

Annemarie Schouw, manager of risk and insurance at Tata Steel Nederland, fully agreed with her colleague. “It is not insurance-driven – it’s actually your license to operate,” she said.

Further serious debate in the market is clearly needed on this fast-changing area and, as Fiedler pointed out, it is imperative that the positive aspects of ESG are taken into account as much as the negative.

The good news is that Joachim Müller, CEO of Allianz Commercial, told Commercial Risk ahead of the GVNW Symposium that his firm is taking ESG seriously from an investment and underwriting perspective, and is keen to work in partnership with its customers as things evolves over time.

“ESG is part of our daily underwriting routine. We work as partners with our customers joining us in the transformation. We have to let business go if it is not aligned with our net zero ambitions. We would like to achieve net zero by 2030 and our portfolio by 2050. This is a clear path. There are clearly big questions on reporting and on data in this area and it will evolve over time, but we are committed as underwriters, investors and a company as a whole,” he said.