ESG- A Key Trend to Watch Out in the Insurance Industry in 2022

Though the idea has been around for decades, most industries are witnessing a sudden and sharp surge in the number of corporates focusing on their ESG.? But this shouldn’t come as a surprise since we are today in an age where climate change and social injustice are headline news every day. This justifies the increasing significance of ESG and the efforts of companies in tackling environmental, social, and governance issues.???

Earlier viewed merely as an extension of CSR, ESG has emerged as a hot topic and is today is being propelled into the heart of corporate life, with organizations focusing better on doing business ethically in all considering the environmental, social, and governance elements.? Even a cursory look at insurance company reports from this year reveals a steady increase in the attention devoted to demonstrating ESG credentials.?

It appears that ESG is here to stay and the insurance industry is keen to get involved but the question that remains is what are its real impacts on insurance carriers.?

Let’s take a closer look at some of the opportunities presented by ESG for insurers, as the trend washes over the insurance industry.?

Rating factor for Underwriting?

ESG has a high potential of being used as an effective rating factor, with its ability to be used in risk analysis that is key to delivering a positive underwriting result, thus, ensuring a competitive advantage for insurers. This is on account of the fact that higher-rated ESG firms were less likely to suffer incidents such as workplace-related accidents, reputational damage, or penalties. But the real advantage lies in the identification and application of specific predictive ESG indicators that will allow them to improve their risk analysis and pricing, and also provide proactive insight to their customers on the potential risks.??

Higher ROI and environmental benefits?

Though the direct relationship between a security’s market value and its ESG rating is unclear, it has been found that securities with consistently low ESG ratings have a higher risks that can have catastrophic impacts on its price.??

Enhance Customer Relationship?

When done right, ESG can present an opportunity for insurers to create a better-engaged relationship with its customers. An example to quote would be Lemonade, which projects its charity donations as a core part of its marketing and has also been able to strike a chord with millennials through their mindful ESG credentials in new products and efforts.??

ESG factors are not just an opportunity for insurers and is soon becoming an imperative for survival and success since those that are seen to be missing the mark on subjects such as climate change will soon feel the wrath of customers, activists and even regulators. And how insurers use this trend- exploring its opportunities and mitigating the risks will determine the competitive advantage that they can reap.?