What opportunities ESG presents for insurers
As the insurance market continues to embrace environmental, social and corporate governance (ESG), both traditional and digital insurers are discovering that while there are many benefits to implementing ESG and related programs into their existing practices, it can also be a double-edged sword.
On the one hand, it is widely understood that companies which prioritize and put ESG at the forefront of their business are often the same companies that promote long-term financial health, reflect a resiliency to risk and deliver value to their investors. In fact, a recent study conducted by PwC found that 85% of companies understand that ESG will have a direct impact on their business. So why are some still dragging their feet when it comes to implementing ESG?
Despite understanding the impact ESG will have on their business, the reality is that by committing company resources to ESG strategies, the global insurance community will in turn be held accountable to show progress against its goals and other regulatory standards, meaning having updated ESG metrics and data becomes an even greater business imperative. Long gone are the days when a simple net-zero pledge was sufficient enough to appease shareholders and clients. In today’s market, you need to show your results if you expect to get anyone to buy-in.
Why now?
Mark Carney, Former Governor of the Bank of Canada and the Bank of England and Past Chair of the Financial Stability Board, summarized the integration of ESG into businesses well: “Achieving net zero emissions will require a whole economy transition – every company, every bank, every insurer and investor will have to adjust their business models. This could turn an existential risk into the greatest commercial opportunity of our time.”
It’s no surprise that neither traditional nor digital insurers want to miss out on the opportunity ESG provides, but it’s important for them to remember that ESG isn’t just a temporary trend, and it’s also more than just rebalancing a company’s portfolio away from heavy carbon emitters toward low-emission enterprises. Insurers must also consider the “S” and “G” of the acronym and think about how to incorporate those components into their equation for success.
Underscoring the ‘S’ and ‘G’
When it comes to the social component of ESG, as many companies become more technology based vs. human based, they may find reducing the number of people working in a particular role can also reduce their carbon footprint. However, removing the human element behind a service in favor of technology does not translate to a better customer experience.
Similarly, when it comes to governance, one of the most common things insurers discuss or deal with is data protection and privacy. Digital insurers typically have a leg up over traditional insurers in this area given the role technology inherently plays in its organization and its newer structures allow for more agility when faced with change. That said, even traditional insurers that have embraced digitization and the progressive opportunities technology has to offer for legacy systems, especially around data security, are well positioned to positively embrace any governance changes that could impact the industry.
Hurdle
For the entire industry, the biggest obstacle that continues to impact digital and traditional insurers alike is that there is still no universal strategy for approaching or implementing ESG. This makes it increasingly difficult for the market to understand how successful a company is at implementing its ESG strategy and what their results mean. As mentioned, having updated metrics and data to report against ESG directives is crucial, but until the industry adopts a consistent global standard, we’ll continue to have companies defining their metrics and success differently – making it hard to compare one company to another.
Future
Ultimately, while both digital and traditional insurers may be approaching ESG from a slightly different angle, some focusing more on the environmental aspect versus the social or corporate governance factors, their end goal for doing so is the same. That is, to drive long-term strategic value to their company and shareholders while simultaneously acting as a good steward in their communities. The inherent business value ESG offers can be attained if the industry works together to understand what has proven successful, what hasn’t and how insurers should report against their goals. By increasing the dialogue and collaboration among the insurance industry, including sharing ideas and best practices around ESG, both digital and traditional insurers can begin to work toward an accepted industry standard and collectively move the industry forward on ESG.
