Climate change and aging populations pose the greatest Environmental, Social, and Governance (ESG) risks to European re/insurers, according to a new survey by Moody’s Investors Service.
Over 90% of respondents to Moody’s survey, which polled 15 European re/insurance companies, said that ESG is an important consideration for their businesses and brand positioning.
Brandan Holmes, a Vice President and Senior Credit Officer at Moody’s, said: “ESG has become an area of strategic focus for many European insurers, consistent with our view that the industry recognizes the potential for ESG to affect investment and underwriting outcomes. Insurers are increasingly committed to assisting in the development of a more sustainable economy.”
Most respondents anticipated that climate change would have a significant impact on insurance risk over time, largely due to the potential for greater physical damage from more frequent and severe catastrophic weather events.
However, the majority also believed that the industry would be safeguarded by its ability to annually renew and reprice insurance contracts, even if climate risks are not sufficiently reflected in current prices.
In regard to aging populations, re/insurers are faced with the challenge of managing longevity risk and higher medical expenses as they try to provide policies that can fund the provision of care for longer periods.
Re/insurance profitability may also be impacted by a decline in the number of working-age individuals, which will likely reduce demand for a range of property and casualty (P&C) and life products.
Moody’s concluded that, whilst most respondent recognised the challenges of these ESG risks, there had been uneven progress in developing ESG strategies and effectively integrating them into business models.