Who is the first person to get a distressed phone call when a business is flooded or leveled by a wildfire? The insurance broker or agent. I now believe that realtors play a critical role in building and maintaining more climate-resilient communities. If brokers can help their clients better manage environmental risks – a crucial pillar in ESG – they can better fulfill their advisory role.
Just looking at climate change in isolation is problematic because it has huge implications for the S pillar in ESG. Too often, minority communities are the ones most at risk and most uninsured. Climate change and environmental risks affect every single person on this planet – not just the insurance buying community. Brokers need to keep this in mind and be proactive in how they help build resilience – through insurance coverage and risk mitigation – in their communities.
This point ties into the broader topics of Diversity, Equity and Inclusion (DE&I) – perhaps the focal point of the S pillar and another area of great importance to insurance brokers and agents. At Insurance business we talk to insurance leaders on a weekly basis about the importance of DE&I and the huge benefits it can bring to business. The general conclusion is that insurance brokers and agencies with diverse teams generate the best results because they are able to attract and retain a more diverse clientele. That’s a no-brainer if you ask me.
When it comes to governance – pillar G – this is nothing new to people in the insurance industry. Insurance brokers, agents and carriers have developed robust governance structures over the years, responding to evolutions in regulations and compliance and increasingly using tools such as data and analytics to understand the impact of risks – including E and S risks – on their balance sheets and business portfolios .
So, this is how I would summarize the direct impact of ESG on insurance brokers and agents – but there are some other important things to consider.
First, businesses (a.k.a. customers) and their customers are vocally expressing concern about ESG issues and taking action within their own organizations. The simple equation is: an ESG-conscious client will not want to work with an ESG-blind broker. To cover all the bases, I think it makes sense for brokers and agents to be ahead of the pack so that they are considered thought leaders and leaders on all ESG matters. Only then will they meet the growing expectations of their customers in these matters.
Another important element is that many insurers are already incorporating ESG into their organizations and business strategies. For example, the race to net zero carbon emissions could not be more evident in the insurance industry, with every company seemingly trying to outdo the competition by announcing shorter transition plans. Like clients, carriers on the ESG path will not want to hinder their progress by partnering too closely with a broker or agency that lags on ESG.
In addition, insurers are beginning to incorporate ESG into their underwriting strategies – in some cases completely changing their risk appetite. Again, this is important for brokers and agents to consider. For example, insurers may want to cover only companies with certain ESG practices and may opt out of seemingly “dirty” industries such as oil and gas. Brokers with large energy portfolios or any other challenging ESG risks may need to review their market strategies and educate themselves on mitigating actions. All of this is important for brokers to understand so they can prepare their clients to go to market and provide the best insurance solutions possible.
These are my two cents on why insurance brokers and agents should care about ESG. This is still a relatively new concept and we are all learning about it every day. If you have any thoughts on why ESG is a top business priority for your agency or brokerage, please let us know in the comments section below.