Like any other, the insurance industry stands to reap significant benefits from embracing environmental, social, and governance (ESG) in strategy execution.
Insurers must take advantage of ESG opportunities to propel their growth strategy, future viability, and long-term sustainable delivery of dividends for stakeholders.
ESG provides an opportunity for insurers to be differentiated in the marketplace, build trust with stakeholders, and maintain competitive advantage.
The end-to-end value chain for insurers is an area where insurers can identify opportunities for differentiation from an ESG perspective. Some of these include the following:
From an underwriting perspective, insurers should include ESG stress testing on their portfolio that incorporates climate scenario analysis data.
Carrying out stress testing will enable underwriters to understand the potential impact of ESG on their reserving and capital levels, which will then impact product pricing and portfolio selection.
It also allows insurers to tailor their policies better to their customer’s needs, giving them a competitive advantage with customers. From a capital and risk control perspective, insurers can apply ESG scenario analysis to understand the capital levels required for planning purposes.
In addition, insurers can align their investment portfolio with their ESG strategy, including sustainability commitments and ambitions. For products and pricing, ESG opportunities include developing products that target and address ESG risks for customers, such as extreme weather events like floods and droughts.
Insurers could also use pricing for policies to incentivise and promote ESG-related activities that incentivise customers towards a lower carbon footprint across their operations. From an internal and servicing perspective, insurers should also take advantage of ESG opportunities in net zero, energy transition, and circularity that reduce waste.
Also, insurers should include ESG considerations in supplier decisions, such as building a net-zero supplier standard and ESG scoring. Insurers should also consider developing a sustainable claims management standard for all categories of claims.
Successful integration of ESG across an insurer should include governance roles and commitments, with clarity on roles and responsibilities.
There should be accountability across every level of the organisation, starting with the executive leadership.
ESG should be cascaded across every operation and functional area of the insurer, and insurers must make adequate investments towards a data management strategy and reporting, which is fundamental for decision-making internally and communicating with internal and external stakeholders.
