Insurers need to adapt to evolving ESG demands – report

US insurance companies need to start adapting to evolving demands from stakeholders regarding environmental, social and governance practices, according to a new report by AM Best.

Six in 10 US insurance companies agreed that demand from stakeholders to explicitly consider ESG factors in their decision-making is on the rise, according to the survey.

Compared to Europe, the US insurance sector is still in the early stages of ESG integration, according to AM Best. The rating agency evaluated property-casualty, life/annuity and health insurers and reinsurers operating in the US on their ESG approaches and found that carriers’ focuses varied by segment.

P&C insurers’ responses showed that they focused more on environmental risk, while life/annuity insurers said they focused mainly on investment risk. Health insurers put greater emphasis on the social impacts of health equity.

At the same time, all three US insurance segments focused strongly on corporate governance, according to the new Best’s Special Report, “US Insurers’ Perceptions of ESG.”

“Survey results show that insurers believe there are risks to ignoring stakeholder pressures related to ESG factors, and particularly with regard to diversity and inclusions, carriers generally view corporate governance as a key to managing and mitigating reputational risk,” said Rosemarie Mrabella, director at AM Best.

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Other highlights of the report include:

• Between 40% and 50% of surveyed US insurers and reinsurers, and 51% of stock companies compared with 42% of mutual companies, are actively engaged with ESG
• More than half of survey respondents in the P&C and life/annuity sectors agree that proper understanding and integration of ESG factors is becoming more critical to the long-term viability of their business, compared to 39% in the health insurance sector
• About 60% of the insurance and reinsurance industry seeks greater clarity from regulators, especially in regard to identifying, measuring and reporting ESG factors
• Integration of ESG factors into the investment process seems to be ahead of underwriting. Less than 25% of survey respondents believe it is extremely or very important for underwriters to consider ESG factors in the underwriting process

“Companies are evaluating how to integrate ESG factors into their business models, but to be viable they must also identify and assess how these factors can impact their business from a risk perspective, while also identifying new opportunities,” said Jason Hopper, associate director of industry research and analytics at AM Best.