The ongoing activity of governments and the spotlight being shone by activists on these issues has also led to an increasing amount of ESG-related legislation - largely focused on disclosure of risks and other ESG factors.
As more public announcements emerge from (re)insurers on their individual targets for responsible underwriting and investment, in the latest edition of The Insurer TV’s analysis programme, Prospective, we pull together what we believe will be the Top 10 key ESG themes for 2021.
1. Once assets; now liabilities
ESG began as an investing concept for (re)insurers, but it is now evolving rapidly into becoming an important component of underwriting and other aspects of (re)insurers’ operations.
2. Regulatory spotlight
ESG is now a regulatory and ratings issue. In recent months, the New York Department of Financial Services, AM Best, Lloyd’s and EIOPA have all made pronouncements. Industry experts throughout the programme have all observed it will be the regulators in the UK, EU and US that will drive the agenda on how the industry addresses ESG.
3. Data and disclosure
There is a distinct lack of consistency over ESG data quality and disclosures. This is being remedied but is a clear issue - it is especially important with underwriting where there is less consensus over what represents ESG compliance.
4. Not exclusively an investment and underwriting issue
Over time, ESG will encompass a broad range of principles many of which are also relevant to intermediaries. It’s no surprise then that traditional first-mover firms such as MMC have taken steps already.
5. The US is catching up with the EU
As we have discovered, most early adopters thus far have typically been the large, European companies, but momentum is accelerating in the US. The recent political changes are likely to only add further pressure and the US is tipped to make progress on catching up to Europe on climate change regulation in 2021.
6. ESG - a holistic approach
ESG has come from the world of investing. But it is noticeable that industry pioneers, such as RenaissanceRe, Lloyd’s of London, Allianz, Zurich and MMC, are now regarding ESG as a set of guiding principles to be embedded into all aspects of their business. We expect many more to follow in 2021.
7. Lloyd’s of London - taking on an ESG leadership role
Lloyd’s is an excess market which typically writes business others will walk away from. But chairman Bruce Carnegie-Brown has a clear vision of Lloyd’s embracing ESG and occupying a leadership role.
However, as its pronouncement in December proves: it is easier to give guidelines and timings to investing than it is to underwriting given firmer commitments on investing vs underwriting. This is an issue the entire industry will have to reconcile itself to in the future.
8. The ESG underwriting dividend
At the heart of ESG is the drive to a low carbon, global economy. There is a clear underwriting dividend for those (re)insurers who are at the vanguard of this translation and can position themselves as sustainable experts and can also be seen to be active in closing protection gaps.
9. Exposure to lobbying
However, insurers will increasingly be exposed to lobbying not to underwrite certain business. This is not new, but we now operate in a more connected world where activism is more disciplined and more effective.
What strategies will insurers and brokers adopt when they are confronted by organised groups attempting to stop them from insuring fossil fuel assets?
And there is a moral issue here, as well. Should insurers be discouraged from providing cover while the business is entirely legal and necessary?
10. United Nations’ COP 26
In November, the world’s eyes will be on the United Nations’ COP 26 event in Glasgow which is jointly hosted by the UK and Italian governments.
It means climate change and the journey to a green economy will be centre stage and this will inevitably focus attention on what financial services are doing.
To learn more about ESG and how it is shaping the future global insurance industry, click the link below to watch the latest episode of Prospective. It includes a series of interviews with leading industry ESG experts…