ESG (Environmental, Social, and Governance) in Insurance – Thematic Research

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With significant evidence that sustainable companies are likely to be more profitable in the long run, the case for environmental, social, and governance (ESG) action is strong in every industry. As institutional investors and underwriters of risk, insurers should use their size and influence to encourage ESG progress in other sectors. For insurers specifically, several trends will shape ESG strategies. These include the rise in global warming-induced severe weather events and COVID-19, which has worsened existing social inequalities. Insurance companies will need to tackle these issues to ensure sustainability.

What are the main trends shaping the ESG theme in the Insurance sector?

Technology trends

The adoption of IoT devices in the insurance sector has grown in recent years, spurred by the emergence of innovative insurtechs using customer data to personalize insurance products and offer more affordable premiums. Use cases for IoT devices in the industry include using data collected from wearable tech to gain insights on customer health and using connected cars to offer telematics and usage-based insurance (UBI). Not only does access to real-time customer data offer real-time pricing advantages, but insurers can also reduce the likelihood of claims via sensors that detect potential issues.

The impact of AI on ESG is two-fold. While AI technology is mainly used to automate claims processes and customer service functions, it is also increasingly assisting with risk profiling, underwriting, and policy pricing. Here, AI models are trained on vast sets of historical customer data to generate risk-predicting engines that ultimately inform these decision-making processes. However, recent cases where AI has contributed to discrimination and bias have reduced trust in the technology.

The trend affects insurance companies in two ways. Insurers hold swathes of customer data, so the rising cyber threat means internal IT systems need to be secure, with clear protocols in place to prevent any data breaches. For customers with cyber insurance policies, insurers will need to ensure that coverage is extensive enough to support clients and that risk is priced accurately. The ransomware epidemic is particularly concerning to insurers.

Macroeconomic trends

The pandemic will have a marked impact on the ‘S’ in ESG. According to a survey on signatories of the UN Principles for Responsible Investment (UN PRI), several of which are insurance companies, 64% of respondents stated that COVID-19 had brought social issues that were not already a priority onto their radar. These issues included occupational health and safety, social safety nets, diversity, and digital rights. Post-pandemic, respondents stated they would prioritize human rights, mental health, and access to healthcare.

While entering fresh markets will seem attractive, these new consumer groups will have different purchasing habits and insurance needs. Existing products and services will need to be adapted to account for different customer behavior. Broader financial inclusion is an important social sustainability consideration. Consumers in developing markets tend to be mobile-first, using mobile devices as the primary point of interaction with service providers.

The low-carbon transition will heavily influence insurers’ ESG strategies. Companies will be expected to invest in green energy projects and phase out the insurance of coal mines to encourage the shift. Providing insurance coverage for these new risks will also be required, with tailored EV and renewable energy project policies designed to support both consumers and energy providers.

What are the ESG challenges in the Insurance sector?

Environmental challenges

Climate change is the insurance industry’s biggest environmental challenge. As countries strive to meet net-zero GHG emissions targets, insurers should use their roles as investors and underwriters to speed this process along. Divesting from carbon-intensive and high-emission industries will encourage the global transition to a low-carbon economy. Protecting consumers, companies, and communities against the many climate risks they face will also be a key priority, particularly given the significant natural catastrophe protection gap.

The significant financial impact of physical risks on insurance portfolios means insurers must balance financial stability while improving the risk resilience of the communities they serve. Closing the natural catastrophe protection gap should not come at the cost of poor solvency. In June 2021, the Bank of England (BoE) officially announced its first biennial stress test of the ability of the UK financial system to cope with climate change. Under three climate scenarios that span 30 years, the BoE will evaluate 19 of the UK’s biggest banks and insurers on their resilience to physical and transition risks. Insurance companies assessed will include Aviva, RSA, and Direct Line. The stress test signals a growing regulatory focus on ESG and the appropriate management of climate-related insurance risk.

Social challenges

COVID-19 has brought social issues to the fore. Not only are insurance companies increasingly aware of the social impact of their actions, but many have pledged to prioritize issues such as human rights, occupational health and safety, and data rights. For insurers, the main social challenge will be acting in a way that does not worsen social inequalities and, where possible, implementing strategies to improve financial inclusion.

To cater to the different demographic trends amongst these consumer groups, companies may benefit from developing tailored insurance products to suit the needs of potential customers. Using technology to introduce innovative distribution channels could also be a successful strategy, particularly in developing markets where consumers are very mobile-oriented. Technology will also help lower business costs, allowing insurers to offer more affordable premiums and boosting insurance accessibility.

Governance challenges

The insurance industry faces several specific governance challenges. Given the growing role of technology in the sector, data privacy and security are the most important risks. Entrusted with vast amounts of customer data, insurers must minimize cybersecurity risks and third-party access to customer data. Board diversity is another issue. The financial services sector is known to be heavily male dominated. While overall gender and ethnic representation have improved, diversity in more senior positions is lacking. Lastly, due to the multinational status of most leading insurers, transparency over taxes is vital. Aon, AXA, Allianz, and Chubb are just some of the insurers operating in Bermuda, known for their tax advantages, light regulation, and proximity to the US. However, while offshore operations are legal, increased scrutiny of tax havens will mean insurers face greater pressure to improve tax reporting.

Which are the leading companies focusing on ESG theme in insurance sector?

Major insurance companies focused on ESG include AXA, Allianz, Munich Re, Swiss Re, Aviva, Suncorp, Marsh McLennan, AIA, Zurich, Lemonade, Root Insurance and Ping An.

Market report scope

Outlook Year 2021
Key Players AXA, Allianz, Munich Re, Swiss Re, Aviva, Suncorp, Marsh McLennan, AIA, Zurich, Lemonade, Root Insurance and Ping An

This report provides an in-depth analysis of the following:

  • Companies must take a holistic approach to sustainability that addresses all three of its major aspects: environmental, social, and governance. GlobalData’s ESG Framework helps clients build trust with society and set them on a path forward toward sustainable success for their companies and the planet.
  • Several tech trends are shaping ESG progress in the insurance industry. While the increased adoption of technology in the sector raises concerns over how data is used, technology also plays a role in assessing climate risk and improving insurance accessibility. These are two big ESG challenges insurers must tackle.
  • Underwriting and investment decisions will be the most impactful environmentally and socially. Withdrawing from carbon-intensive industries and developing products to close the natural catastrophe protection gap will improve the climate resilience of the global population. Divesting from industries with unethical practices and human rights violations will minimize insurers’ indirect social impact while encouraging investees to prioritize ESG.

Reasons to Buy

  • This report is crucial to understand how ESG is changing and will continue to change the insurance industry. It will allow you to identify trends and track competitor activity in the ESG theme.

  • Benchmark your ESG strategy against competitors in the sector via access to several examples of successful sustainability initiatives across each of the E, S, and G categories.

  • Identify areas in which to prioritize ESG investment using our comprehensive analysis of the most important ESG challenges facing the insurance sector and best-practice approaches to mitigate these risks. Staying abreast of emerging ESG trends in the sector will help improve your sustainability credentials.

Ping An
Root Insurance
Tokio Marine
Swiss Re
China Life
Swiss Life
Munich Re
The Hartford
RSA Direct Line
Anthem Chubb

Table of Contents

Executive summary

GlobalData’s ESG framework


ESG action feedback loop

ESG challenges in insurance

Case studies

ESG timeline


Sector scorecard


Further reading

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