Insurance CEOs also commit their CFOs to sustainability at a higher rate of 55%, compared to their business counterparts by 47%, as it becomes increasingly clear that environmental, social and managerial frameworks (ESG) are no longer optional.
Read on: ESG’s challenges are becoming increasingly important to boards of directors
“Investors and legal entities are showing increasing interest in ESG. There are now some ESG-specific funds that will only invest in these companies. And you can argue about whether these funds are doing the right thing or not, but you can’t argue that they have a huge financial impact on companies around the world, “said Mark McLaughlin, global general manager of insurance. Insurance business.
The 2016 Paris Agreement was a turning point in climate action, sparking a global leap in corporate and government environmental policies. The pandemic also revealed blatant social inequalities around class, gender, race and sexual orientation. Stakeholders are pushing the pedals to get the ESG engines running, and insurers can no longer sit in the back seat.
Another factor that encourages insurers to adopt the ESG is public perception. McLaughlin said the industry is one of the biggest spenders on branding, with some organizations spending billions to improve their image.
“If insurers are not perceived as environmentally conscious, if they are not perceived as supporters of social justice trends, if they are not perceived as having good governance on these issues, their brand is at risk. “I think this is the biggest driver for insurers besides the investment problem,” he said.
But far from being an vanity project for the insurance industry, its unique position in the sustainability movement must also be intrinsically motivating.
McLaughlin explained: “Insurers are in a situation where we manage our food risk, and concerns about environmental and social justice are also major drivers of risk. We can not only make our own companies more sustainable, more environmentally friendly, more socially aware, but we can guarantee through our insurance products that we can include all other industries. “
Unclear ROI, slow technological progress
There are still significant barriers preventing CEOs from putting sustainability on their agenda, including a lack of clarity on how ESG policies can affect the end result.
In a study by IBM, CEOs said their biggest fear was a vague return on investment. But McLaughlin said that should not be a problem for CEOs of insurance companies.
“In insurance, it’s actually an easier conversation [to have]because if there is a risk in these areas, we are in a position to build products and services that can help. You help companies avoid or reduce these risks and make some money while doing so. ”
For insurers, integrating ESG into core business and operations means reversing their strategies for taking, investing and managing risk and developing personalized ESG products and services. But slow assimilation processes and outdated technology are dragging this transformation, McLaughlin said.
“I don’t know of ever meeting a person in insurance who said, ‘I’d like to release my products more deliberately,'” he said with a smile. “They want to move faster. The limiter is usually the core technology and the speed with which it can build new products that can deal with sustainability issues. “
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Working with regulators
Regulators are another part of the sustainability puzzle for insurers. According to an IBM study, regulatory concerns are the main external factor cited by 58% of CEOs of insurance companies that will affect their business in the next 2-3 years.
How can CEOs deal with regulatory pressures on stakeholder requirements? The answer, McLaughlin said, is to lean back and work together.
“When regulators in the United States [tell insurance companies]: “Hey, we want some evidence that you manage the climate impact in your portfolio”, the result of which will inevitably be that the industry will try to make bad environmental practices more expensive in terms of risk. “Because you risk investor riots, litigation, environmental lawsuits, or changes in environmental regulators,” McLaughlin said.
“Those businesses that don’t build ESG are actually riskier. If the industry values this risk appropriately, it will encourage not only insurance but all industries to be more responsible. “
This is the opportunity for insurers to partner with regulators and stakeholders to reduce bad practices through a combination of management and financial incentives.
McLaughlin said the conversation should be a compromise: “We need to understand how to work with politicians to manage these changes in ways that promote sustainability, while not completely forgetting that if you raise insurance rates by 30 %, you value much of the market. ”
“Insurers can be a force for good”
ESG considerations, given the already complex economic environment, may seem like a minefield of risk. But insurers are in a unique position to be a force for good, McLaughlin said Insurance business.
“The biggest opportunity for our industry is to manage our investments to promote sustainable practices. There is no other industry that can work with these companies to help them improve their environmental practices, to promote this reduction of environmental impact through risk premiums and products, “he said.
“One third of CEOs in our industry are already trying to manage such products with business partners. I think that number will double in a few years. “