Marsh working to see good ESG performance reflected in premium costs

Insurers are hungry for ESG data to aid underwriting but without proven correlations between ESG scores and losses, only a few are rewarding companies that perform well, Marsh told Commercial Risk. Interest in ESG data is being driven in large part by reporting requirements and demand from stakeholders for more ESG information. However, companies and insurers are beginning to wake up to the risk management and insurance benefits of ESG data, according to Amy Barnes, head of climate and sustainability strategy at Marsh. Marsh launched its ESG risk rating tool in March to help companies track and benchmark their ESG performance. The confidential self-assessment tool produces a scorecard across 18 themes taken from the World Economic Forum sustainability framework, plus supply chain issues. Initial findings from the ESG risk rating tool show that power and utility, manufacturing and life sciences score highest. “The tool gives clients a roadmap of where they are doing well and where they want to target... So we have tried to make it as actionable as possible,” explained Barnes. Marsh is already seeing good insurance outcomes from the ESG rating tool. In Australia, clients with good scores can obtain discounts for premium financing. In the US and Canada, Marsh has agreed preferential terms and additional risk management services with Liberty Mutual for clients that use the tool and share their ESG data. “There are insurers that want to put out preferential terms for clients to test the hypothesis. So they will create a cohort of their client base and give improved terms for sharing their data, not just for being a good risk,” said Barnes. Marsh now intends to use the data from the tool on an anonymised basis to identify correlations between good ESG scores and losses. “This summer we will be doing analysis, starting off with workers compensation and employers liability, to see if we can find a relationship [between ESG and losses],” said Barnes. “We have a hypothesis that good ESG will be correlated with strong risk management. We would see companies with good employee relations, good diversity and good community engagement with fewer or less severe liability losses. Likewise, companies with good water and waste management and biodiversity policies will be well-run sites with fewer or less severe property losses,” she added. Insurers are increasingly developing or adopting in-house ESG assessment frameworks, explained Bev Adams, head of climate and catastrophe resilience at Marsh. “These will begin to support or underpin underwriting decisions going forward,” she said. But as yet, good ESG scores are not widely reflected in premiums – much to the frustration of some buyers, according to Barnes. “Some clients are frustrated because they have good ESG ratings but this is not being recognised by their insurer. If we can show there is a relationship between good ESG performance and risk quality, it’s the easiest broke of all,” she said. Correlations between good ESG and better underwriting outcomes have been established in D&O insurance but not more widely for other P&C lines, explained Barnes. “At the moment, if we have good ESG performance we haven’t shown that manifests as good underwriting outcomes. But if we are saying good ESG is a good risk, then we should say someone with a good ESG score is better risk managed, just as fire safety systems should reduce severity, if not frequency of loss,” Barnes said. Marsh has already created enhanced ESG-related D&O coverages with insurers in the US and Bermuda, and will soon announce similar agreements with UK insurers.

Marsh working to see good ESG performance reflected in premium costs

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