(Re)insurers have rapidly expanded their focus on ESG over the past year, with the issue rising in prominence across the insurance value chain.

ESG collaboration

Among corporate insurance buyers, a survey ahead of this year’s Airmic conference highlighted that regulatory compliance in the context of ESG is now the leading topic of concern for risk professionals. 

More than 40 percent of risk professionals believe that climate change will have a material impact on their organisations within one to two years. 

Among carriers, the deepening focus on ESG issues has been documented through coverage within The ESG Insurer, and is reflected by the increasing prominence of designated sustainability and ESG positions as well as engagement on the issue at senior management and board level. 

Much of the focus has been on the ‘E’ component of ESG, and actions taken to address climate change. We are now just weeks away from the COP26 UN climate conference in Glasgow, where the focus will be on the political will to commit to previously agreed carbon reduction targets and pledges for funding to help vulnerable countries. 

Another goal of the event is to increase collaboration among businesses, civil society and nations in the delivery of solutions to help prepare for the coming changes – something the (re)insurance sector is perfectly positioned to do. 

A study by S&P Global Ratings has in recent weeks highlighted some of the challenges climate change presents to the industry in terms of modelling and portfolio management.

The study warned reinsurers could be underestimating their exposure to natural catastrophe risk by up to 50 percent, highlighting potential for a material increase in the amount of capital that will need to be held against cat exposures

Dennis Sugrue, credit analyst at the ratings agency, cautioned that this was a “what if” scenario based on the past 30 years of data, not a projection for the future.

But the risk is substantial enough for the rating agency to use it as a starting point on discussions around its assumptions and current modelling methodology.

These discussions will form part of a broader strengthening of rating and regulatory focus across the industry over the next 12 months.

The climate challenge also brings opportunities for the sector. Sean McGovern, CEO for the UK and Lloyd’s at Axa XL, said the opportunity he is most excited about is “driving new products to help with the green transition”.

“In order for us to help our clients manage from where they are now to a greener future, they are going to have to decommission certain ways of working and they’re going to have to onboard different ways of working,” he said.

He highlighted how collaboration will be critical in the journey towards net zero.

“Insurers can’t solve the problem on their own so we have to partner with our clients, we have to partner with governments, partner with regulators and partner with each other,” he said.

Broadening the focus

Within this edition, we speak to Axa XL’s recently appointed head of ESG for the UK and Lloyd’s, Katie Lennon, who highlights the importance of not neglecting the social and governance side of ESG.

Lennon said over the next 12 to 18 months companies should be creating roadmaps on how they are going to achieve their ESG goals. 

“With ESG data things will measure against your policy and then for me, the exciting part is what are you doing to deliver on it and then demonstrate progress against what you said you are going to over the next couple of years,” she explained.

We also examine an initiative instigated by Gallagher Re to make it easier for first-time buyers to get on the housing ladder, as well as recapping all the major industry ESG developments during September.