Ivass ramping up pressure on Italian insurers’ ESG credentials

The Italian insurance supervisor Ivass will more closely monitor the sustainability related investment and underwriting activities of insurers after its latest analysis found inadequate data and inconsistent reporting among supervised firms. The supervisor said that it appreciates that this is a work in progress and that the EU’s range of rules – such as the Corporate Sustainability Due Diligence Directive (CSDDD), Corporate Sustainability Reporting Directive (CSRD) and Greenwashing Directive – are still under discussion and so the eventual requirements remain unclear. But Ivass will encourage insurers to intensify their efforts to come up with suitable information cataloguing systems, help construct indicators required by the provisions and improve modelling underlying both investment and underwriting. This comes as risk and insurance managers across Europe are voicing rising concerns about the information demands made by insurers about their ESG strategies and performance, and exactly how this information is used, particularly at renewal time. It seems that all are agreed – supervisors, insurers and customers – that this whole area needs to be better defined, codified and made consistent to avoid it becoming a big waste of time, effort and resource for little gain. The Italian supervisor’s report – Risks from natural disasters and sustainability: annual monitoring – was the latest quantitative and qualitative survey aimed at all Italian insurers. Ivass said the survey is designed to analyse and monitor physical risks facing insurers from natural disasters connected to climatic and seismic events, transition risks and sustainability risks The investigation analyses the dual role of insurers as institutional investors and underwriters, explained Ivass. It will continue this project to help strengthen tools that monitor financial stability and bolster the role of insurance in reducing the protection gap, while helping the transition towards a sustainable economy. “The survey [based on 2022 data] highlighted, as expected, an uneven market situation. Companies of greater size and operational complexity declare that they have launched most of the activities necessary for full integration of the ESG factors in corporate strategies and practices, in risk management activities, in both investment and underwriting, as well as having ongoing (or already implemented), reviews of the corporate governance structure and organisational structures,” reported Ivass. “Smaller companies, especially those that do not belong to groups and therefore not able to benefit from the support of the ‘key functions’ of the group… are further behind in developing response strategies and/or adaptation to new stresses coming from legislation and from the market,” it added. The supervisor rightly conceded that all companies are currently reporting difficulties in finding the information and data on sustainability risks. This, it said, is largely caused by the fact that the various European standards on the subject have “only been developed recently and some are still being finalised”, said IVASS. “Taking these results into account, the investigation will also continue for the 2023 financial year and beyond, both for the purpose of monitoring the progress of Italian companies and to encourage them to intensify their efforts to equip themselves with suitable cataloging systems of information, construction of the indicators required by the provisions and modeling of the scenarios underlying both investment activities and of underwriting,” it continued. Data quality Ivass said that companies have encountered “significant difficulties” in collecting data regarding eco-sustainable investments, in particular those eligible for the purposes of the European Taxonomy. Furthermore, almost all insurance companies have resorted to estimates when it comes to insurance coverage and losses from individual climate risks On sustainability governance and management, Ivass reported that 94 insurance companies provided data representing almost all of their investments, and all of them carry out climate risk underwriting in one form or another. Ivass reported that at the end of 2021, the €2.1bn of premiums collected for climate risk coverage was equal to 5.6% of the total non-life business in the Italian insurance sector, while earthquake risk coverage of €0.4bn was equal to approximately 1% of the total non-life business sector. Some 58% of climate risk premium income is generated by hail risk, for which the industry combined ratio was greater than 100%. The supervisor found that there is a significant concentration of coverage for climate risk at national level. Five groups account for 77% of the premiums. Against stable premium levels in the three-year period from 2019 to 2021, the costs for claims caused by climate risks increased by approximately 28%. Based on this analysis, Italian insurers expect an increase in underwriting activity over the five-year period from 2022 to 2026, accompanied by a probable increase in tariffs as a result of rising claims and settlement costs from extreme climatic events in Italy, said Ivass. It added that most insurers said that they have established decarbonisation goals within their investment portfolio. It said this objective is generally being pursued through strategies of “progressive exclusion” from economic sectors deemed to be in line with the sustainability criteria adopted in international conventions. Investments in so-called green bonds are widespread, equal to approximately 5% of private bonds held by Italian insurance companies. Ivass said that the average value of carbon emissions financed by Italian insurance companies through their investments is approximately 215 tonnes of CO2 equivalent per million euros of investment in the private sector. “This value is very diversified between reporting companies and between the different asset classes of the portfolio. It should be underlined that only 60% of life and non-life companies provided data, however partial, highlighting that the availability of quality data is still scarce,” concluded Ivass. So while progress is clearly being made, this whole area remains very much a raw work in progress, particularly on the underwriting side. So it seems that Anra members should not expect rewards for their ESG performance at renewal any time soon.

Ivass ramping up pressure on Italian insurers’ ESG credentials

Anra members should not expect rewards at renewal any time soon

Want to read this article?

Read Next

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Marsh McLennan achieves ‘Autism Confidence’ status

New management liability policy from digital MGA Aurora

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Marsh McLennan achieves ‘Autism Confidence’ status

New management liability policy from digital MGA Aurora

Want to read this article?

Read Next

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Marsh McLennan achieves ‘Autism Confidence’ status

New management liability policy from digital MGA Aurora

Related Articles