Roundtable: Can ESG unlock insurer value?

ESG may not always have been top of the insurance agenda but it’s fast becoming a key differentiator for customers and employees. Insurance Post recently gathered a group of insurance, underwriting and data experts to discuss how firms can better evolve their ESG strategies in line with growing demand and responsibilities. Saxon East recounts the most notable talking points from the conversation.

Attendees

• Michael Gregory, underwriting strategy director, RSA
• Amir Sethu, head of sustainability and ESG, MS Amlin
• John Campbell, head of strategy and risk management, Tokio Marine Kiln
• James Bosley, head of climate strategy & parametric solutions, Gallagher
• Ellie Arch, claims handler at Arch
• Christopher Suckling, senior sustainability analyst, Apollo Underwriting
• Ruth Poulten, social impact & ESG manager, RSA
• Karl Pearse, senior customer partnership manager, CRIF
• Mattia Bongini, data science manager, CRIF
• Kishan Mangat, co-chair, iCAN

Driving value from ESG data

There is ‘so much data out there’ to help insurance companies align their underwriting with environmental, social and governance principles, but much of the value is being left untapped, roundtable participants heard.

Michael Gregory, underwriting strategy director at RSA, told attendees it was important to use data to focus on a clear pre-defined goal.

Gregory was speaking at a roundtable discussion in London on ‘How can insurers drive enhanced profitability and competitiveness through the greater use of ESG data?’

Discussing how companies can use data for ESG goals, he said: “There is so much data out there that we can still use, whether it is geospatial data, whether it is to do with company profiling, whether it’s to do with financial record.

“There is so much out there. We have this data. But it is [about] being clear and deliberate on how we are going to use it.”

Gregory told the discussion group how RSA had been clear on its carbon commitments and goals – widely regarded as an important aspect of ESG – producing a successful alignment with its underwriting.

Mattia Bongini, data science manager at business information solution provider CRIF, explained how they worked together with an insurance firm on ESG to generate underwriting profits.

We’ve seen there is an essential correlation [between ESG and profitability]. You could, let’s say, underwrite those companies at a lower fare because you can afford it as an issuer. You can attract them to your portfolio.

Mattia Bongini, data science manager, CRIF

He said: “[We wanted to] see if there could be a correlation between some of the environmental, social and governance behaviours and their profitability, and the claims frequency they’re experiencing.

“We have seen that there is an essential correlation. You could, let’s say, underwrite those companies at a lower fare because you can afford it as an issuer. You can attract them to your portfolio.

“So, it is also a tool to make you better in terms of your sustainability and the sustainability of your portfolio, of the companies you are onboarding.”

Treading carefully

Despite data offering enhancements to underwriting profits and ESG strategy, the roundtable heard there is no ‘one size fits all’ solution.

Christopher Suckling, Apollo Underwriting senior sustainability analyst, said: “There’s a lot of data and different methodologies out there, but the information providers could be clearer in demonstrating the use cases for commercial insurance. There isn’t a cookie-cutter solution.”

Gregory stated that there was no definitive standard on the data for ESG, meaning any company that stood behind certain data points and standards to give companies they underwrite a ‘black mark’, was taking a risk.

He said: “If you make decisions like that, and your underwriting can’t understand why you are making that decision. That is reputation defining.

“It is particularly important if you are a lead insurer, where relationships are important. It might differ if you are a London market underwriter, or you are a follower, where that relationship is less important.”

Roundtable participants agreed using ESG data for underwriting was at an early stage and there was not that much historic data to lean back on.

Amir Sethu, head of sustainability and ESG at MS Amlin, said: “We are very nascent in terms of the ESG data, as regards to the insurance sector. Like all forms of data, it is going to take a few reporting cycles to try and identify any trends.”

Sethu believed the market was evaluating what data is best to use and where to apply it.

He said: “We haven’t quite worked out, or delineated, what I refer to as decision-useful data versus data that is required for regulatory reporting purposes.

“Recognising that the latter is important, it is the former I’m really interested in... that gives us some good, strategic, decision-useful information in terms of direction of travel.”

ESG for underwriting

Chair Jonathan Swift asked the room how far companies are from showing a correlation between ESG data in underwriting and underwriting profitability.

Campbell said: “As an industry, we are a little way off that. At Tokio Marine Kiln (TMK), we have explored a number of ways that we might get there, but very much [through the lens of] a Lloyd’s business. With SME it is very difficult to get that insight into our customers.”

Campbell added TMK had partnered with firms, such as those in the Lloyd’s Lab, to work on the issue. While there was learning from partners, the progress was slow.

“The complexity of the issues means that even if a single company were to solve it, maybe it doesn’t work for the market. So we need a kind of common understanding or currency around all of this.”

Gregory said: “We are very embryonic as an industry on this. I’m yet to have seen or heard anyone in a similar role as mine, or seen or heard them saying this is going well.

If you make decisions like [black-marking a company based on ESG criteria], and your underwriting can’t understand why you are making that decision, that is reputation defining.

Michael Gregory, underwriting strategy director, RSA

“And if they are, I haven’t seen anything in their performance. But we have been in a hard market, so it is really hard to work out what’s been driving results.

“I think the truth of any data source, or the truth of true outperformance, comes when the market is more challenging. I think that will come out over the next few years.”

Ellie Arch, claims handler at Arch, believes ESG has impact beyond just underwriting.

She said: “I think you can embed it throughout the business. I do claims. I know that on our claims team we have different processes.

“If a potential ESG payment came in, we’d flag it and take it to the underwriters.”

ESG impact

Earlier in the discussion, Swift asked the roundtable what was driving ESG adoption in insurance and where its impact was most felt.

The question triggered a mixed response, perhaps showing the multi-faceted nature of ESG.

Sethu kicked off answering the question and said: “What we’ve seen within our business has been a focus on what I refer to as balance sheet, or the reputational risk management side of things, versus the opportunity side.

“And I think it has to have happened in that order. The focus has been on the energy-related, the power-related books of business.

“Perhaps that is a red herring – which may sound counter-intuitive.”

The group discussed the acronym ESG, and what it meant to their companies.

Campbell said ESG could mean different things to people. On sustainability, he said his company – Tokio Marine Kiln – had been very clear.

RSA social impact and ESG manager Ruth Poulten said when she started her career working on corporate social responsibility, there was very little emphasis on the ‘E’.

She said: “There’s definitely been a groundswell in the movement much more towards the ‘E’ and I would say it feels like the conversation has all been around the ‘E’ - about the transition, about the climate.

“Have we slightly lost our way with the ‘S’ and understanding what we should be doing and what we should be focusing on?”

ESG momentum

Swift asked who was driving the ESG momentum, to which Campbell answered: “In two places it is quite interesting.

“At the board level and the executive level, we, as a business, have been very focused around culture.

“What does that mean for our staff, our communities and our clients? Through that, you quickly get to elements of social, but also our purpose. So why are we here?”

“There’s a need for managing uncertainty. Then you get the people who are engaged with enacting that vision. So that becomes day-to-day. Then you get the broad staff within the business.

“It’s very noticeable. Whenever we have all-staff events or broad Q&A, the issue of sustainability and climate is always there right at the top of what it means to be part of a company.

“There’s a real hunger to know what are you doing and where is your appetite for doing.”

Gregory highlighted two influences on ESG which are most important.

He said: “As insurance organisations, the two biggest things we can do is influence our underwriting appetite and our investment portfolio.

“All the other things we do are very important, but they are secondary because we exist to use data, underwrite price and then be there in the bad times for our clients.

“If we put our performances secondary, it is unlikely we will be there in the bad times for our clients.”

The power of attraction

The discussion concluded on ESG’s positive influence on attracting talent.

Participants were enthused about the opportunity for pro-ESG insurance companies to gain an edge and enhance their appeal to potential employees. 

Ellie Arch, claims handler at Arch, said: “It’s important in attracting new talent to our market, for it to be seen as a trendy, up-to-date place to work.

“I think a lot of graduates and people coming in now won’t be attracted to insurance because it is seen as an out-of-date industry. To keep and attract people it is really important that we are seen as an up-to-date industry.”

RSA’s Poulten said that when someone first suggested a career in insurance, she questioned why she would enter the industry.

However, having worked in insurance for a number of years, she felt positive about the contribution she was making to society.

“Where I work now, we’re a purpose-driven brand. We’ve got generosity as part of our DNA that we try and embrace. That’s important to me, that resonates with me.”

She added: “Our youngsters want to work for an organisation that is not just driven by profit… that has some meaning and purpose, and it is hard.

I would put ESG at the heart of every organisation because when you log off at the end of the day, you feel like you’ve given something meaningful to the world.

Ruth Poulten, social impact and ESG manager, RSA

“It’s hard sometimes. You look at the news. It’s about climate, about war. You think we should be working together as a collective and collaborating to find some good and deliver those propositions.”

Kishan Mangat, co-chair at the Insurance Cultural Awareness Network, referenced the results of a survey carried out by the network before an industry conference last year.

Asked about key drivers for anyone interested in a career in insurance, the respondents aged between 16 and 20, said having a purpose to their work was a top priority.

Gregory rallied behind the comment. He added: “That is such a good point. I have hired many graduates over the last five years.

“We have seen a change in the questions they ask you. From five years ago to just last year, it has changed. They are more informed. They understand insurers have a big role to play.”

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