Opinion: The ESG Agenda is Transforming Insurance

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This Opinion piece is by Jenni Hibbert, Global Managing Partner and Head of Search Go-To-Market at Heidrick & Struggles. It looks at how insurers are embracing sustainability, the climate change agenda and coping with new circular economy rules on recycling and re-using materials and parts, rather than always choosing brand new.

Before the COVID-19 pandemic struck, the conversation on ESG issues focused almost exclusively on the environmental element, with little weight given to social or governance topics. As global leaders convened in Davos in January 2020 for the World Economic Forum, climate-related issues made up the top five list of the year’s most likely risks.

However, a lot has happened since then. The public health and economic fallout from the pandemic, combined with widespread social unrest, have fundamentally changed the narrative.

Addressing climate change remains a matter of urgency, particularly as the world seeks to “build back better” after the pandemic, but the events of 2020 have created a heightened awareness of racial and social inequalities.

The proper treatment of customers and employees affected by the pandemic and questions about social purpose is increasingly prevalent in board and C-suite level discussions. As a consequence, the ESG agenda is more urgent than ever, but also more complex. With one survey finding that 77% of investors plan to stop purchasing non-ESG products by next year, leaders of financial institutions are faced with pressing challenges – and significant opportunities.

To get ahead of the shift, institutions are prioritizing the ESG agenda in strategic planning, business operations, and board oversight. Across the insurance sector, many of these developments have already started to manifest.

Insurers Leading the Way

In the global context, European insurers are undoubtedly leading the way when it comes to implementing the ESG agenda – notably, by stepping up to support the renewable energy sector.

For example, in early 2020, German Munich Re announced it would be the first to insure the long-term performance of large-scale energy storage facilities, a critical step in easing the shift towards renewables. Swiss provider Zurich has insured the building of three solar energy projects, including “Desert Sunlight,” one of the largest solar power projects in California. Elsewhere, Italian insurance giant Generali has established a competence center to ideate and share best practices when it comes to underwriting the specific risks of the renewable sector.

On the flip side, oil and gas firms may find it more challenging to get coverage in the future. In early 2020, Swiss Re announced its intention to stop underwriting and investing in the top ten percent most intensive oil and gas producers.

Allianz has gone even further. Along with launching its own climate transition fund, the German firm has introduced a comprehensive ESG strategy that spans its entire business. To ensure a consistent approach across the whole company, the firm has established a dedicated board to strategically define and develop its ESG ambition and guide practices. Allianz operates group-wide rules applying its ESG principles to risk management, underwriting, and investment.

American insurers are also making headway. For instance, AIG has established an ESG dividend fund to promote sustainable and impact investing and participates in the Rockefeller Foundation “100 Resilient Cities” program. They help identify and mitigate risks in urban planning and management.

In another example, Cigna has adopted a strategic sustainability performance plan designed to manage global real estate portfolios, focusing on emission reduction, energy efficiency, reusability and recycling, and waste management.

ESG-First Insurance Products

The ESG focus is also starting to become apparent in the types of products that insurers offer to consumers, further incentivizing sustainability. One example is Allstate’s Milewise pay-as-you-drive insurance, which adjusts premiums based on mileage recorded from an in-vehicle device. It offers better savings for low-mileage drivers, incentivizing people to use other forms of transport where possible.

In Canada, Chubb’s “Green Building Restoration” coverage bridges the gap for homeowners looking to rebuild property with greener products and services where their standard policy doesn’t cover the costs. Travelers’ “Green Home” coverage offers a similar product, along with reduced premiums for homeowners certified as “green” by the Leadership in Energy and Environmental Design (LEED) rating system.

Even non-traditional insurers are entering the market by leveraging their appeal to customers interested in social and environmental policies. For example, Tesla offers insurance to those who have already purchased one of its cars. As the biggest operator in the electronic vehicle market, Tesla even poses a threat to the sustainable auto insurance product space. It has the competitive edge against traditional insurers with the ability to easily access and analyze massive amounts of data to understand their vehicle owners’ behaviour.

 

Driving the Change

It shouldn’t go unnoticed that the vast majority of initiatives are heavily skewed towards the environmental side of the ESG agenda. However, that’s not to say that the social and governance aspects won’t come to the fore as companies seek to ensure they’re keeping up with the post-pandemic ESG shift.

For firms still wanting to bring ESG higher up on their own agenda, it’s a process with several distinct steps. Firstly, ESG has to become part of the business strategy, with alignment regarding what it means and the opportunities it captures. Then, establish a system for ensuring board oversight. Many firms are setting up dedicated committees to focus on ESG issues such as lending, target setting, philanthropy, inclusion, or employee culture.

Finally, embed ESG throughout the organization, ensuring that each employee and level of management, all the way up to executive and board level, is aware of the agenda and their own accountabilities. It is becoming increasingly common for firms to elevate the role of the Chief Sustainability Officer, creating a central point of accountability on the executive team. For example, Zurich appointed Linda Freiner as Group Head of Sustainability in 2016, and Celine Soubranne became Chief Corporate Responsibility Officer at AXA in 2018.

Given what is at stake, the momentum surrounding ESG is only going to increase. By giving it the priority it deserves, firms are equipping themselves to capture the opportunities that ESG can offer, as well as mitigate the risks of standing still.

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About alastair walker 6525 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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