26 January: What’s going on in ESG and insurance?
January 26, 2023
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. The week’s topic: ESG data
Read our summary and analysis below.
Analysis
ESG data
Better Insurance Network, a collaboration network focused on insurance sustainability, and Oxbow Partners have released the findings of a joint report exploring how commercial insurers capture and implement ESG data for underwriting, how they intend to use it in the future, and the challenges the industry must overcome to improve ESG data quality and assessment.
The report, “ESG Data for Underwriting – How (re)insurers can capture and implement ESG more effectively and lead the transition to a more sustainable economy”, revealed a lack of understanding among brokers over how their clients’ ESG data is being used by (re)insurers and a growing frustration over the lack of consistency in the way it is captured.
At the same time, the report highlighted a raft of challenges (re)insurers face in capturing reliable ESG data, as well as the wide spectrum of maturity and a significant degree of uncertainty among (re)insurers over how to implement it in underwriting decisions.
While some (re)insurers said they expected ESG to have a direct effect on pricing and coverage in the future, most are still trying to establish how ESG risks and opportunities relate to them and how to embed ESG considerations in the underwriting process.
The report suggested best practices for (re)insurers to enable them to develop a robust ESG strategy – an essential step to futureproof their businesses given the industry’s direction of travel on ESG.
25 industry stakeholders participated in the study, including insurers, reinsurers, brokers, industry associations, rating agencies and policymakers.
Download the Report
Summary
ESG data in underwriting
Oxbow Partners publishes report on ESG data for underwriting (Oxbow Partners)
Better Insurance Network, a collaboration network focused on insurance sustainability, and Oxbow Partners have released the findings of a joint report exploring how commercial insurers capture and implement ESG data for underwriting, how they intend to use it in the future, and the challenges the industry must overcome to improve ESG data quality and assessment.
Key findings from the report included:
- Standardisation is needed to address inconsistencies in the way ESG data for underwriting is disclosed, captured and implemented in the underwriting process
- Brokers and clients are increasingly frustrated by the lack of transparency from (re)insurers over how ESG is used in the underwriting process and the inconsistency of question sets they receive from underwriters
- (Re)insurers want to embed ESG data into underwriting dashboards and decision-making processes along with other risk factors
- Many (re)insurers are attempting to quantify key ESG metrics including greenhouse gas emissions within their underwriting portfolios
- Some are exploring the potential correlation between ESG and profitability
- (Re)insurers expect client ESG data to affect risk pricing and/or terms within five years, with insureds with better ESG profiles rewarded with favourable coverage
- Reinsurers have the potential to demand ESG data from insurers but surprisingly, only a few have used their position in this way
- Progress accelerated in the past 12 months in the standardisation of ESG data for underwriting, but there is still a long way to go
- Greater collaboration between (re)insurers and brokers, including among competitors, is essential to move the industry forward
Road to net-zero
UN & NZIA launch target-setting protocol to accelerate transition to net-zero (Reinsurance News)
The United Nations-convened Net-Zero Insurance Alliance (NZIA) has launched its first Target-Setting Protocol. Version 1.0 of the Protocol will enable NZIA members to begin to independently set science-based, intermediate targets for their respective insurance and reinsurance underwriting portfolios in line with a net-zero transition pathway that is consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100.
This important milestone comes 18 months after the Alliance’s launch at the 2021 G20 Climate Summit in Venice by eight of the world’s leading insurers and reinsurers. Since then, the Alliance has grown to 29 insurers and reinsurers representing about 15% of world premium volume globally. The Protocol builds on the launch of the first-ever global accounting standard to measure greenhouse gas emissions associated with insurance underwriting portfolios (“insurance-associated emissions”) developed by the Partnership for Carbon Accounting Financials (PCAF) in collaboration with the NZIA.
Activist groups slam NZIA protocol as “weak”; “lacks ambition” (ESG Insurer – subscription required)
Climate activist group Insure Our Future has criticised the launch of the Net-Zero Insurance Alliance’s (NZIA) Target-Setting Protocol as “weak”, “outdated” and “devoid of any ambition”.
According to Insure Our Future, version 1.0 of the NZIA Target-Setting Protocol has a number of loopholes, including:
- The protocol only stipulates that insurers “should” set targets to reduce the Scope 3 emissions of their customers, but does not mandate them to do so – even where emissions are significant, and data are available
- Under their emission reduction targets, insurers can aim for reductions which are as modest as 34% by 2030 – far below the reduction targets of the IPCC’s 1.5°C report of 43% and the 50% reduction targets mandated by the Race to Zero campaign
Zurich teams up with South Pole to support clients’ net-zero goals (Strategic Risk)
Zurich Resilience Solutions has partnered with climate solutions provider South Pole to provide new advisory solutions to clients. The joint offering will provide businesses with solutions to help them define, plan and execute short and long-term climate resilience objectives and net–zero goals. Focusing on measuring physical climate risk and emissions, the solution will provide guidance to clients on how to reduce both.
ClimateWise members continue “steady progress” ahead of crucial year in 2023 (ESG Insurer – subscription required)
Climate-focussed insurance association ClimateWise has said its members lifted their average score for progress on climate change targets in 2022, scoring well on risk management processes but with lower public engagement scores. Notably, ClimateWise members rose 18 percent to 41 in 2022.
Products & offerings
Aviva enhances sustainability commitment with new offshore wind market offering (Insurance Times – subscription required)
Aviva has extended its renewable energy insurance offering into the offshore wind market. This is a growing area with new offshore wind projects totalling 108GW projected for the UK and Europe by 2030. According to Aviva, its renewables portfolio is now more than 200% of the size of the fossil fuel book it exited in 2019. The insurer has further strengthened its position in renewables by launching its own stand-alone policy wording for battery electric storage systems (BESS), as well as launching an Electric Vehicle Charging Point proposition.
Allianz merges renewable power team in green power expansion (Insurance Business)
Allianz has combined its renewable energy experts within the engineering, construction and power (EC&P) business into one team as part of an underlying ambition to grow the company’s green power portfolio.
The insurer said in a release that the “cross-regional team of local underwriters” will service brokers and customers in the renewable energy sector. By putting all the experts into a single hub, Allianz hopes to add valuable expertise, resilience, and scale to its operations, while enhancing the company’s interactions with its brokers.
kWh secures Aspen capacity for new renewable energy property program (ESG Insurer – subscription required)
kWh Analytics, an MGA specialising in zero-carbon assets, has announced a new property insurance product in partnership with Aspen Insurance. The offering covers physical damages to solar projects and other renewable energy assets, offering policy limits of up to $75mn.
Chaucer to insure delivery risk of carbon sequestration projects (Insurance Day – subscription required)
Chaucer is set to provide lead underwriting capacity for Kita’s Carbon Purchase Protection Cover, which offers insurance protection against delivery risk for buyers of forward purchased carbon credits. In addition to the insurance offering, Chaucer is investing in Kita, commenting that the partnership could help increase investment into sequestration projects by addressing a key protection issue in the industry.
Challenges & enablers
UK competition watchdog to ease rules on climate change action (Financial Times – subscription required)
The UK competition regulator will ease the antitrust rules on climate change initiatives to tackle business concerns that collaboration on climate action could expose them to claims of collusion.
WTW: Nat cat capacity and price to challenge $1bn+ London renewables market (The Insurer – subscription required)
The availability and pricing of nat cat reinsurance cover will be the “greatest influencing factor” for the renewable energy insurance market in 2023, with declining capacity and price increases posing challenges to premium modelling, according to WTW.
Aon: Global insured losses from natural disasters exceeded $130 billion in 2022, driven by second-costliest event on record (Cision)
Aon has published its 2023 Weather, Climate and Catastrophe Insight report, which identifies global natural disaster and climate trends to help make better decisions to manage volatility and enhance global resilience. The report reveals that natural disasters caused a $313 billion global economic loss during the 12-month period under review – 4 percent above the 21st-century average – $132 billion of which was covered by insurance.
Data show that 2022 was the fifth costliest year on record for insurers, with approximately $50-55 billion of the global insured loss total resulting from Hurricane Ian in the United States – the second-costliest natural catastrophe in history from an insurance perspective, surpassed only by Hurricane Katrina in 2005, which resulted in nearly $100 billion in insured losses on a price-inflated basis.
About the authors
Eleanor Ewen is a Senior Consultant at Oxbow Partners. Her work has included undertaking a culture review for a Bermudian reinsurer and building a ‘break-out strategy’ opportunity for a UK retail insurer. Alongside this, she helped draft a ground-breaking report on ESG which launched in Bermuda.
