Trends to Watch: ESG and Climate Concerns Continue to Dominate Risk Agendas
ESG issues pose a broad and complex set of risks and opportunities to companies and investors. Insurance underwriting and pricing, for example, is becoming increasingly focused on understanding and assessing ESG-related risks. Topics that have emerged as key underwriting considerations include:
- Board Composition: Showcasing a diversity of thought, skill, and background among executive teams and boards has been viewed favorably by underwriters.
- Board Oversight: Aligned with investor expectations, underwriters have delved into how a company is implementing formal oversight of ESG-related goals and responsibilities at the senior leadership and board level.
- Climate: Public representations regarding climate goals, and commitments to a credible transition plan, have become a requirement for some coverage types.
- Cyber: Evidence of proper management and controls has become critical to demonstrating risk maturity to insurers in a changing insurance market.
- Risk Assessment: Conducting a comprehensive risk assessment to clearly identify and articulate the company’s ESG journey and material risks is more important than ever.
- Human Capital Management: Disclosures on actions the company is taking to address social issues and create a comprehensive culture of Diversity Equity and Inclusion continues to gain traction in underwriting decisions.
Providing data-supported information on these topics will elevate insurer understanding of a company’s ESG performance and risk maturity. Proactively preparing for underwriting meetings with the above topics clearly addressed will be a key differentiator in underwriting decisions and is likely to impact a company’s total cost of risk.
Aon can help. Aon’s global experience, supported by data-driven insights, and ecosystem of strategic alliances enable us to work with companies to address their ESG challenges and opportunities. Aon can support clients as they navigate through their ESG commitments, advising on resilience and governance to satisfy regulatory requirements, and reduce reputational risk. We co-create and tailor solutions with our clients to help meet their most pressing needs in their ESG journey.
The Impact of ESG and Climate Change on Claims
Both ESG and climate change impact claims today, and their impact will increase going forward. Simply reading through the commentary above will bring to mind issues related to claims across multiple lines of coverage – Management Liability, Property, Cyber, Political Risk and others – and those issues exist in both the coverage and quantum elements of the claims arena. As the risk and insurance industry evolves from its current approach to ESG coverage towards more innovative solutions, it will be essential for the claims community to evolve at the same pace. This will require talent investments in new skills, challenging our industry to recruit from different and broader resource pools.
Aon’s perspective is that the claims community will rise to this challenge, but also that the client and insurer communities have key roles to play in ensuring that this does not become a new ‘battlefield’ dominated by lawyers. There will be instances in which legal advice is required, but that should be the exception and not the rule.