ESG Spotlight: Ethics, talent and underwriting profit – how ESG can help insurers

Twenty years ago, the United Nations published a landmark report, called Who cares wins, encouraging companies to embrace environmental, social and governance principles.

The report is widely seen as the birth of ESG. Two decades have passed since that watershed moment, yet some insurance companies still lack clarity on how to embed ESG into their business practice.

This year, Insurance Post and data provider CRIF surveyed insurance professionals on ESG. Only 18% of staff said ESG was wholly embedded in products and services.

This means most insurers are not yet fully embracing ESG in working practices.

If they are looking for ideas, a group of UK insurers are showing best practice – from pricing and underwriting to staff motivation and community investment.

Helping customers

Powerful analytical software and modern data collection means insurers are moving closer to the holy grail of ESG – improved underwriting profitability.

Companies like Axa are scraping Companies House data, analysing emissions output, and scrutinising the health and safety database, says Doug Barnett, Axa director of mid-market and customer risk management.

They are then overlaying this information with other forms of internal data to gain a holistic ESG picture of clients.

Axa found success using ESG data in Italy to help customers and underwrite more profitably, inspiring an international approach.

The firm has been able to help customers manage their risk better, such as on accidents and emissions.

Barnett says: “In Italy, it’s definitely been a positive. That’s why the UK and a couple of other countries are looking at it very, very carefully.

“We think over the next two or three years there will be a way of using ESG information to a greater extent and using it to engage with the customer. Our customers have spent a lot of money on ESG.”

Focus on profits

Along with UK regional insurers, parts of the London market are embracing ESG as a route to improve underwriting profitability.

Around a third of respondents to the CRIF-backed ESG survey said carbon emissions was a climate change risk they evaluate in pricing and underwriting.

Andrew Mackenzie is outgoing marine claims adjuster at Atrium Underwriters and due to begin a new role as head of claims at Clearwater Underwriting. He is a big advocate of insurance companies embracing ESG data to improve underwriting.

In partnership with Bayes Business School, he authored a research programme on the latest initiatives on marine decarbonisation.

The project included interviews with a wide variety of stakeholders – including underwriters – across the marine market.

There was a widespread acceptance among underwriters interviewed that vessels adhering to latest regulations on carbon emission outputs, and especially those attaining higher carbon compliance ratings, would produce better loss ratios for insurers.

Mackenzie believes ESG-conscious firms are better risks. As a result of the survey, he suggested a data-driven approach to underwrite vessels in accordance with their carbon risk.

He said: “I don’t think it would be an unfair assertion that if you as marine management, are actively looking to decarbonise, then you are that much better at fostering crew well-being.

“Taking if further, you are also probably going to manage and maintain your equipment and engines better. You are going to regularly schedule your vessels for dry docking more often than those who don’t.”

Mackenzie accepts that there will be some ‘ESG undercutters’. These are insurers who purposely underwrite those lower quality risks that are not carbon compliant.

However, insurers can face reputational damage and even lawsuits if they shun ESG.

Data is one thing but you’ve got to understand how to use it. For me, companies that can prove they have good ESG credentials will be a much better managed risk and they should be more profitable.

Doug Barnett, director, mid-market and customer risk management, Axa

Mackenzie concludes that taking an ESG data-driven and underwriting approach is imperative for all markets.

He adds: “It’s ubiquitous. It’s do or die across markets. It’s not just in energy, marine, transportation, aviation – it’s everywhere.”

Underwriting carefully 

While some insurers take a nuanced underwriting approach on risks that are non-optimal on ESG, Ecclesiastical is unequivocal in its approach. It does not underwrite or invest in most climate-harming industries.

The insurer belongs to the Partnership for Carbon Accounting Financials, a widely used body that enables financial institutions to disclose greenhouse gas emissions associated with financial activities.

Group Impact director Chris Pitt says the methodology is ‘very broad’ and not the kind of data-driven approach Ecclesiastical would normally take.

“It’s a climate overlay of underwriting. It will become more detailed in its data in the future, but for now, it is shifting our perspective to look at our underwriting that way.”

Allianz is another insurer taking a carbon-conscious approach. A spokesperson said as part of its net zero transition plan, it aims to reduce CO2 emissions by 30% in the retail motor segment and 45% with regards to greenhouse gas emissions intensity.

Staff and social impact

Aside from the underwriting side, one of the clearest examples of insurers embedding ESG practices is on the social side.

Insurers are offering up their staff and funding for good causes that have a positive social impact, with the European giants of Axa and Allianz among those leading the way.

Axa staff can take days each year to volunteer locally. Activities range from cleaning plastic out of rivers and watercourses, to helping the disadvantaged.

Allianz staff work together with a campaign called MoveNow which empowers people to stay active.

The program involves a global partnership with the International Olympic Committee that aims to improve the health, well-being and employability of the younger generation and people with disabilities by encouraging them to move their body, mind and soul.

Ecclesiastical and Aviva are two UK headquartered insurers embracing the social aspect.

Ecclesiastical pursues a socially beneficial activity through its long-running partnership with English Heritage. The insurer funds research on the way climate impacts historic buildings.

Aviva is making major contributions to good causes. The Aviva Community Fund las year helped 531 projects across the UK, raising £7m.

The insurer contributes on average 2% of adjusted operating profit to community investment. In 2023, this amounted to £32.5m.

All the social work has a positive impact on the way an insurer is regarded by both its own staff and prospective employees.

For example, Barnett believes interns want to know they are working for companies that have a positive social impact.

He says: “I think interns are really important. They are with us for 12 weeks. They will go back to university and talk about what they've found. We’ve got a great message to show them and demonstrate what we actually do.”

Social and environmental benefits, positive impact on staff morale, attracting talent, and improved underwriting profits – it’s clear ESG has multiple benefits.

While there may be work to do in getting insurance firms to fully embrace ESG, the future impact of ESG in insurance will continue to grow. 

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