Global law report highlights increased ESG scrutiny for insurers

The increased scrutiny of ESG strategies in many jurisdictions is impacting directors’, officers’ and financial institutions’ coverage, as well as professional indemnity policies for firms advising on climate-related financial disclosures, according to Global Insurance Law Connect (GILC). It also notes growing pressure on insurance companies to be more transparent on sustainability. In the fifth edition of its annual Risk Radar Report, the network of law firms focuses on environment, social and governance (ESG), highlighting its worldwide impact on the insurance industry. Gillian Davidson, chair of GILC, said: “We are already seeing the significant impact of ESG on the insurance industry, for example with the dual governmental and social pressures of new regulation and stakeholder activism. There is recognition within the insurance industry that embracing appropriate ESG policies can lead to significant growth opportunities, the creation of long-term value, and risk management benefits. While insurers have made advances in this area, more needs to be done to meet governance and climate change risk assessment obligations.” She added: “Members are also seeing the impact of ESG on the business community. Organisations that rely on carbon-intensive production are struggling to find insurance options, and it is increasingly difficult in many parts of the world to underwrite business for frequent and severe natural catastrophe events. In addition – against a backdrop of geopolitical risks, supply chain disruptions and inflationary pressures – organisations are coming under increasing strain as they aim to strike the right balance between ESG investments and managing increasing costs.” In the report, UK law firm Beale & Co says the scrutiny on ESG is likely to give rise to insurers looking carefully at proposal forms and the due diligence they carry out to assess their insured’s response to ESG. “This is likely to primarily affect D&O and financial institutions insurance, but also the professional indemnity policies of firms advising companies on issues such as climate-related financial disclosures. There will therefore be pressures on accountants and auditors who carry out these functions,” it says. In the foreword to the report, the board of GILC says: “Our member firms have unsurprisingly reported that awareness of ESG risks has grown significantly among their clients, but there is still a great deal to be done to educate and incorporate best practice. Globally, a number of issues have emerged as significant. These include a growing pressure on insurance companies to be more transparent on sustainability, which comes both from stakeholders and in the form of more strenuous reporting requirements.” It goes on: “There is also a trend towards increased regulation on every front, from measurement of the impact of climate change to understanding of supply chains in increasing levels of detail. Meanwhile, related claims are rising and insurers are also grappling with increasingly frequent and severe natural catastrophes, which are impacting insurability in a number of regions and insurance classes of business.” Within the report, law firms in different jurisdictions highlight growing ESG regulations – Belgium for example is described as being “flooded with ESG regulation”. In Denmark, ESG requirements have led insurers to become stricter with underwriting policies, particularly for heavily energy-dependent industries and carbon heavy manufacturers. “This has – on the other hand – prompted a push-back from brokers, stating there is a de facto ‘ban’ on underwriting certain lines, leading to the policyholders having to either accept large premium increases (non-claims related) or going abroad for cover,” says Danish law firm Ark. In Germany, Dr. Carolin Schilling-Schulz, partner, Arnecke Sibeth Dabelstein, says: “Customers and policyholders find the ESG compliance of products important, but sustainable insurance products are still lagging far behind traditional products. This is largely due to the lack of a clear definition of ‘sustainability’.” This is backed up by Spanish law firm Blanco y Asociados, which states: “The lack of a definition of sustainability still poses a real problem to insurance companies who have, since August 2022, been required to integrate it into their operations.” Commercial Risk and Global Risk Manager are to launch a dedicated information service covering Environmental, Social and Governance (ESG) issues, aimed primarily at large organisations in Europe. ESG Risk Review will provide insight and intelligence on sustainability risks, covering regulation, litigation and insurance market news, as well as analysis, comment, interviews and webinars. ESG Risk Review will be supported by Zurich as our headline partner and will offer free-to-access content for all risk and insurance managers and related ESG officials within corporates. It will launch on 17 May 2023. To sign up for the monthly newsletter, please visit: https://www.commercialriskonline.com/esg-launch/

Global law report highlights increased ESG scrutiny for insurers

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