Best’s Special Report: Wide-Ranging Stakeholders Demand Greater Insurer and Reinsurer Focus on ESG Principles

Insurers and reinsurers are increasingly focusing on incorporating environmental, social, and governance (ESG) practices into their investment and underwriting decision-making process, according to a new special report by AM Best.

The Best’s Special Report, titled “Wide-ranging Stakeholders Demand Greater Insurer and Reinsurer Focus on ESG Principles,” notes in part, insurers and reinsurers are coming under greater pressure from stakeholders. Over the last few years, investors have made judgments based on a broad range of criteria, as opposed to solely examining financial metrics. These stakeholders aim to improve their understanding of how companies consider and manage emerging risks.

Jessica Botelho, senior financial analyst, said: “Consumers are also demanding that businesses take positions on societal issues and are more willing to engage with those companies that share their values. Furthermore, regulatory authorities, particularly in Europe, and non-government organisations are compelling insurers and reinsurers to demonstrate greater transparency, and disclose how they adapt and consider ESG risks and opportunities in their operations.”

However, the report also notes there are differing attitudes to ESG and approaches are far from uniform. Yvette Essen, director of research, said: “When an insurer or reinsurer chooses to cease providing insurance cover to a particular segment, a gap is left in the market that competitors may choose to fill. This has been noted in the case of coal, where in Europe, most of the largest insurers and reinsurers, measured by gross written premium, have taken actions such as reducing their insurance and asset exposures to coal projects. However, outside Europe, many companies are yet to roll out this approach and are therefore able to service these clients, potentially charging a higher rate given the diminished capacity in the market.”

Nonetheless, AM Best expects (re)insurers that decide to ignore stakeholder pressures related to ESG factors also must consider the potentially adverse effects of elevated reputational risk. AM Best notes that the industry’s focus on ESG is likely to remain an area of interest for the foreseeable future, with more regulators introducing ESG-related disclosure requirements.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=283161.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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