Fidelis recently strengthened its sustainability drive with the appointment of Victor Riega, who joined group chief underwriting officer Charles Mathias and general counsel Patricia Roufca to discuss the carrier’s sustainability plans with The Insurer.
What’s your background, Victor? Why did you join Fidelis?
Victor Riega: I joined from Standard Chartered, where I was a senior sustainability manager. Before that I worked at Aviva, where I led its initiative on modern slavery. I was group corporate responsibility manager and led the company’s approach to human rights, corporate responsibility governance framework and corporate responsibility risk management. As part of my role, I set up a framework to ensure compliance with the requirements introduced by the Modern Slavery Act 2015 and delivered their first three modern slavery statements.
I learned a lot about Fidelis and its values when I was at Aviva because of its own work on anti-slavery, such as the new London market cargo wordings. I was very impressed by Fidelis’ commitment to ‘doing the right thing’. So, when I was approached I was delighted. Fidelis is a great example of a dynamic and creative insurer doing very well and with a serious commitment to sustainability.
It is interesting that Fidelis created a new role of sustainability head rather than ESG head. Do you see much of a difference?
VR: Sustainability and ESG are more or less interchangeable although some people give ESG a more technical definition. People have a tendency to overuse the word ‘sustainability’ within job titles when essentially what they are hiring is an environment manager or climate change strategist.
At Fidelis, however, we take the term sustainability to be a broad commitment encompassing not just climate change, but our commitments on human and animal rights, on diversity and inclusion in our workforce and our commitments to charity partners through the Fidelis Foundation.
So, our focus isn’t just on the environment, or a specific part of human rights, we want to look at the whole picture of what makes our business sustainable.
So, how are you going to do it?
VR: The immediate next steps are understanding what we’re already doing that is sustainability related. Secondly, deciding how we can bring all this together so the company can drive its ESG targets in the right strategic direction. We want to create something practical, measurable and flexible. The aim is to develop a clear plan and start implementation before year-end. From an underwriting perspective, I will sit on the daily underwriting call. And I have a specific remit from Richard Brindle, our chairman and CEO, to challenge any risk that does not fit within our ESG principles, and if that challenge is sustained we won’t write the risk.
Later this year, the COP26 meeting takes place in Scotland and greenhouse emissions will dominate the agenda. What are the insurance-specific challenges?
VR: There are several challenges around net zero commitment. Although the target date is 2050, there is a lot that needs to be done in the next five to 10 years. The insurance industry controls a massive share of the world’s investible assets, which means we need to understand how we can best manage our portfolios to encourage change. Then we need to consider the influence we can bring to bear in our underwriting. As we saw with the Adani coal project, concerted action by Insurers can change the calculation around the cost of a carbon-intensive development.
Patricia Roufca: There also needs to be more transparency across the industry on how it plans to reach the 2050 target and how it will help its clients. There have been a lot of conversations but in many instances, these conversations do not translate into specific actions or targets to meet along the way.
VR: Yes, the disconnect between discussions and actions can be concerning. For example, if a company decides to no longer invest in coal but its underwriters continue to write coal-related insurance, that is incoherent. Companies need to show consistency in their actions for the world to reach the 2050 target.
What is Fidelis doing to understand clients and their ESG commitments?
Charles Mathias: The insurance industry is currently caught in a place where it must accelerate adoption and support of ESG approaches. Companies that just commit to working towards the end target of 2050 without a clear path and interim milestones are essentially committing to not much. Internally at Fidelis, we are trying to figure out what a serious commitment with clear milestones means and how we should approach it – which is a big part of why Victor has been appointed.
For instance in our investments we already avoid coal companies. The next step is in our underwriting. Fidelis recently piloted the use of two ESG data providers as part of the underwriting process. Underwriters were asked to review the risks written over the last couple of months. The results are being assessed to determine what tool may work best to help us screen against areas of focus such as animal welfare, human rights, armaments as well as climate and other sustainability factors. The study has raised a lot of questions about the availability and reliability of data, but at least we have made a start, and have the commitment to push this forward.
And where we do see risks with clear violations of our key parameters we will decline them. So far we have declined risks including property, cargo, political risks and violence and marine because of ESG concerns.
There is an assumption that the ESG journey is much too difficult because the insurance industry can’t be seen to lecture its unwilling clients. However, from our experience of engaging with clients on the forced labour clauses in marine cargo, in many instances we find that our clients are ahead of the insurance sector. They are often keen to show us what they are doing, for example through presentations or guiding us to information on their website. The impression that we as an industry are dragging our unwilling clients along the ESG process is not true. This is a very important message we must get across.
Does this mean Fidelis will reject risks because they fail your ESG test even though the pricing is attractive?
CM: We know we are not perfect and we don’t expect every client to be perfect. ESG is a journey that we will all be undertaking over the next years and decades and we want to support clients who are moving in the right direction, as long as that movement has measurable progress. That being said, if risks clearly do not meet our ESG principles and there is no indication from our clients of movement to make improvements, we will decline risks.
VR: As part of our ESG agenda, we want to unleash the power of underwriting to enable a better assessment of the risks so underwriters can have a positive impact on our business, society and the environment. We fundamentally believe that clients who are attending to the physical and reputational risks associated with climate and other ESG risks, are going to be better clients to insure. It’s an indication of a proactive approach to risk management.
At a practical level, how will Fidelis manage the competing pressures of one, being a responsive underwriter and two, ensuring your clients comply with your sustainability vision?
VR: Data and good processes are essential in this regard – as with all aspects of high quality underwriting.
It is important that our underwriters receive information in an automated way and have a good understanding of ESG. This will allow them to make sense of the information they receive and have clarity on what to do next. We have started our ESG practice and are moving to a place where we can turn our ethical values into something that is more tangible. Also, underwriters, in addition to looking at data, will need to engage with their clients on ESG to determine their stance and their plans for change and improvement and credibility of such.
Is it just about the climate or does Fidelis have other values it wishes to share with its clients?
PR: Yes – Fidelis is a values-based company as demonstrated by us taking a leading position on anti-slavery. On that issue we have been the driving force, working with Anti-Slavery International, in getting the marine cargo market to recognise the scale of modern slavery globally and using policy language to help clients recognise their legal and regulatory obligations. As part of our underwriting study this summer we have also been looking at a number of principles that we care about including animal welfare, controversial armaments, intensive farming and diversity and inclusion (D&I). As we’ve said, the real challenge here is getting accurate, timely data, but we are putting significant resources into finding solutions to that. In terms of our own initiatives, we have our own D&I initiatives which we track. We have established a charitable foundation, which supports a number of charitable organisations which align with our values and principles, making a real difference in people’s lives.
Fidelis is also a reinsurer. Does this mean Fidelis will be examining insurers’ commitments to ESG?
PR: We are starting with direct insurance because reinsurance presents another level of challenge in the context of available information. This is definitely an area where we will engage in dialogue with cedants to understand how they are tackling these issues and share our own concerns and experiences.
CM: We are not trying to beat people with a stick to get them to do exactly what we do – many people are already actively working on ESG initiatives. Regulators are also starting to require information on what companies are working on in the ESG space so data will become more widely available. At Fidelis, we are always willing to go first and blaze the trail. We know we will not get it right all the time but it is important to be in dialogue with our clients and brokers to make sure we understand their business. We are all on this journey together.
Ultimately, is the insurance industry doing enough to take a lead on sustainability? If not, what more should be done?
CM: We’re very clear on what we want to achieve but how we do it and the consequences of doing it are what we need to work out. The ESG pilot we are completing is helping us improve our knowledge of the exposure in our underwriting portfolio. Companies need to get the data, understand the impacts, talk to brokers and clients and then progress on their ESG journey.
VR: While it is good to be moving in the right direction, I think we need to move faster and be more decisive. We also need to take into consideration that in areas such as climate, things are not going to wait for us to take action!
PR: Insurance has a lot of power because if you can’t insure it, you can’t do it. And we have to recognise that the talent in the next generation has grown up with ESG issues and expects to see action and not words. We want to attract the brightest and the best, and they won’t take vague commitments or 30-year plans; they want to know what we’re doing this year. By getting that understanding of what our current position is, we can then answer what are we doing next.