Reinsurance News

Study reveals lack of understanding over re/insurers’ ESG data use

3rd February 2023 - Author: Jack Willard

According to a recent report from Better Insurance Network and Oxbow Partners, brokers are hoping to get more consistency and transparency from insurers on how client environmental, social and governance (ESG) data is being used.

big-dataThe report, titled ‘ESG Data for Underwriting – How (re)insurers can capture and implement ESG more effectively and lead the transition to a more sustainable economy’, revealed that there is a general lack of understanding among brokers over how their clients’ ESG data is being used by re/insurers, and that there is also a growing frustration over the lack of consistency in the way it is captured.

Further findings of the report also highlighted a series of challenges that re/insurers face in capturing reliable ESG data, as well as the wide spectrum of maturity and a significant degree of uncertainty among re/insurers over how to implement within underwriting decisions.

However, while some re/insurers said they expected ESG to have a “direct effect” on pricing and coverage in the future, most are still trying to establish how ESG risks and opportunities relate to them and how to embed these considerations in the underwriting process. The report also suggested best practices for re/insurers to enable them to develop a robust ESG strategy.

25 industry stakeholders participated in the study. This included insurers, reinsurers, brokers, industry associations, rating agencies and policymakers.

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Additional findings of the report also showed that many re/insurers are attempting to quantify key ESG metrics including greenhouse gas emissions within their underwriting portfolios.

At the same time, the reported showed that re/insurers expect client ESG data to affect risk pricing and/or terms within five years, with insureds with better ESG profiles rewarded with favourable coverage.

The report also highlighted that reinsurers have the potential to demand ESG data from insurers but surprisingly, only a few have used their position in this way.

“Improving the quality of ESG data for underwriting is vital to enable (re)insurers to better understand the ESG risks, opportunities and impacts within their portfolios and to fulfil their critical role in leading the transition to a more sustainable economy. Greater collaboration between stakeholders is urgently needed to standardise ESG data capture and implementation, which will in turn build greater trust and transparency between underwriters, brokers and insureds on ESG,” said Antony Ireland, Founder of Better Insurance Network.

“Building an approach for ESG data is becoming increasingly essential for (re)insurers. Despite the known coverage gaps and consistency challenges, ESG data is needed to embed ESG within underwriting. The question for many (re)insurers is not whether to acquire and incorporate ESG data into their underwriting processes, but how to do it in a way that aligns with the outcomes they are seeking and their overall ESG strategy,” commented Miqdaad Versi, Partner of Oxbow Partners.

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