Contents
- Cover
- Spotlight on ESG Widens to Social Concerns
- Contents
- Sompo Names Leaders for Reorganized Expanded Insurance Business
- Verisk Announces Successors to Retiring CEO-Chairman
- United Fire Group's CEO Set to Step Down
- Lloyd's Appoints Chief People Officer
- AIG Names Chief Procurement Officer
- CNA Specialty President-COO to Step Down
- Web Traffice: Visits to Websites of Insurers that Offer MPLI Coverage
- Masthead Forestay
- Growth Through Green
- Green Means Go
- ESG Under Insurance Regulatory Spotlight
- Focus on ESG Expands Beyond Environmental, Energy
- For ESG Investors, It's Getting Easier to Be Green
- Connecticut, UK to Create an 'InsurTech Corridor'
- Interest Rate Increases Posing New Challenges for Life Insurers
- Marine Mutuals North P&I, Standard Club in Merger Talks
- Best's Rankings: Members of the International Group of P&I Clubs
- Preferred Publisher Program
- App Store
- AM Best Multimedia
- Best's Credit Rating Actions
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Commission recently introduced broad proposed
disclosure rulemaking to help to increase the access
to timely, relevant, and decision-useful climate-related
information. Clearly, a number of states within the U.S.
are taking a clear leadership position as we look at
California, Connecticut, and New York starting to put
more definition around those expectations for U.S.
insurers.
Will there be uniform ESG international
standards in the insurance industry?
Sullivan:
I believe so. We’re already starting to
see some of that coalescence around a common
framework. This is relevant to the insurance industry
as well as many other industries when you look
at the Task Force on Climate-Related Financial
Disclosures and how the framework itself can be
tailored for different industries and the unique
circumstances of those participants in the industries.
The NAIC Annual Climate Risk Survey that has
been in place since 2010 covers a significant portion
of the industry, the work that’s underway to align
the objectives, and the information to the Task Force
on Climate-Related Financial Disclosures—we’re
already starting to see some progress in that area.
What are the ESG challenges facing insurers?
Kumar:
From an immediate need perspective
or immediate challenge perspective, it’s getting the
climate data and tools needed to get actionable
information to inform insurance companies as to
how they should transition.
There’s a real gap between the desire of what we
want to do with climate science and data availability,
Eric Dinallo
Debevoise & Plimpton
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which is challenging to building real
transition
pathways. We’re seeing that play out right now.
Net Zero
Asset Owners Alliance is made up of asset owners and
investments who are on a different timeline when it
comes to their climate transition journey than insurers.
Earlier this year, they came out saying, “Oh, well, we’re
going to need a little bit of lag time to achieve the
interim targets that we had set for ourselves because of
this real gap or a disconnect between climate science
and economic reality.”
What developments are you seeing around
greater regulatory scrutiny of ESG?
Kumar:
From a regulatory perspective, when it
comes to risk discovery, regulators are asking for more
stress tests just like the PRA has done. Through that
process you have a conversation that’s going on about
the limitations of the current models and the usability
of that information for regulatory purposes or any
kind of monitoring purpose.
As risk discovery becomes greater there’s also this
realization that you can start impacting affordability and
accessibility of insurance. You started seeing that with
flood insurance, on affordability. If people are going
to pull back, what happens if you can’t get insurance
to some of these markets? That conversation around
accessibility and affordability and the link to risk
discovery is very important.
How are you and your team navigating
increased calls for ESG disclosures in 2022?
Kumar:
We haven’t hidden behind being a
mutual and have leaned into increased disclosure
and transparency. I recently put the finishing touches
on our next TCFD report. It’s our second year. We
have done stress tests and scenario work that a lot
of regulators would like. We also are in our third
year of the sustainability report, and we’ve aligned
to the Global Reporting Initiative Standards and the
Sustainability Accounting Standards Board. These are
these global standards that people are looking for.
There are challenges. When I came from the
investment industry, one of my colleagues told me,
“Insurance, we’re the stepchild of the financial sector.”
I laughed at it but the more I leaned in, the more I
realized there’s a different degree of sophistication in
the insurance sector because they have been writing
risks for a while. The business is different than banking
or investments. And the reporting and disclosure
should be, too.
BR
Asset Management & ESG
Focus on ESG Expands
Beyond Environmental, Energy
Diversity, equity and inclusion along with sustainable investing are top of
mind in the insurance industry.
by Lori Chordas
“We feel DEI ... is a must-have. We’ve
started educating all the customers
and brokers that we work with and
other stakeholders on how DEI
should be viewed as a risk if you have
a lack of DEI commitment and you’re
not progressing on your DEI journey.”
Julia Oltmanns
Zurich North America
W
hile climate change has dominated
many of the discussions around
ESG, social issues are increasingly
becoming more prominent. As
environmental and governance components of ESG
remain top of mind, the “S,” or the social aspect, of
sustainable investing is quite broad and often has
been misunderstood and harder to grasp. That’s
changing as the pandemic has placed a renewed
spotlight on the importance of sustainability and
social issues such as human rights, labor rights,
health and safety, and diversity and inclusion.
Christie McNeill, associate partner, McKinsey &
Co.; Kerri Hamm, head of business development,
Munich Re US; Julia Oltmanns, director of diversity,
equity and inclusion services, Zurich Resilience
Solutions, Zurich North America; and Kevin
Gaffney, deputy commissioner of the Vermont
Department of Financial Regulation’s insurance
Lori Chordas
is a senior associate editor. She can be reached at
lori.chordas@ambest.com
.
division, participated in a panel discussion with
AM Best TV concerning the social aspect of ESG
investing. Following is an edited transcript of the
panel’s discussion.
What’s driving the rising emphasis on social
issues among companies today?
McNeill:
Overall, we see major and growing
momentum for ESG as a whole. It’s a board topic at
almost every insurer and major corporation. There’s
now more often than not a chief sustainability
officer, in many cases reporting directly to the CEO.
In terms of capital flows, ESG funds are
continuing to grow rapidly and are on track
to reach about a third of global assets under
management by 2025. When we look at consumer
sentiment, Gen Z and millennials care deeply about
sustainability and ESG topics. We see a continued
shift toward ESG in customer demand that
continues to grow.
On the social aspect in particular there is
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Christie McNeill
McKinsey & Co.
growing focus across stakeholder groups. Many
employees are expecting more from their
employer in our current labor market where
talent attraction and retention is critical. There’s an
expectation that the focus is not just diversity, but
true equity and inclusion.
From an asset social perspective, how are
insurers thinking about the reach, access and
affordability of products and new coverages
and solutions to expand societal impact?
McNeill:
What we see is that the insurers
who are really doing this best are addressing
their vulnerabilities and capitalizing on their
superpowers. They understand what is their market
share among underrepresented populations?
Are they able to reach via all the channels that
are necessary the populations that they aspire to
serve? And what are the unique capabilities that
they have, that if they really applied focus to could
generate significant value both in terms of the
societal benefit and the opportunity for growth
and profitability?
For a life insurer, that might be a focus on
financial wellness, increasing savings. For a
P/C insurer, it may be around community-level
resilience and public-private partnership on that
dimension.
What are some business opportunities related
to sustainable investments and solutions?
Hamm:
Even in a wealthy country like the
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United States, there are still insurability gaps.
One of Munich Re’s “superpowers” is to use our
risk knowledge to help close those insurance
gaps. A great example of this is homeowners
who are exposed to loss from flash flooding
due to intense rain events. Those events are
becoming more common as a result of climate
change. We’ve used our risk knowledge of pluvial
flooding to develop a turnkey solution for inland
flooding exposure. Our clients can fully adopt
our solution under their own brand without
taking on additional risk. It works to address and
close that insurance gap.
Another example for us is public-private
partnerships. We are bringing our risk knowledge
to the local government level where we are
working with them in very specific ways to help
develop affordable solutions for communities
to become more resilient in the face of natural
disasters.
What impact has the pandemic had on the
social aspect of sustainable investing?
Hamm:
From a reinsurance perspective,
Munich Re naturally has to have a very long-
term investment horizon and a conservative
investment strategy. We refreshed our corporate
strategy during the pandemic. Part of that
comprehensive strategy addresses investments.
We plan to double our commitment to
renewable energy to
3 billion, as well as
achieve net zero in our investments by 2050.
Kerri Hamm
Munich Re US
Asset Management & ESG
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Asia
|
Europe
|
North America
22
Those are moves that we have to start making
now in order to achieve those goals due to the
long-term horizon of our portfolio.
More businesses are now recognizing that
their ESG concerns need to include diversity,
equity and inclusion. What has been Zurich’s
approach to that?
Oltmanns:
Earlier this year, Zurich decided
that, in addition to focusing on what we’re doing
internally with our employees, we really wanted to
start helping customers on their DEI journey. We
feel DEI is not a nice-to-have any longer; it really is
a must-have.
We’ve started educating all the customers and
brokers that we work with and other stakeholders
on how DEI should be viewed as a risk if you
have a lack of DEI commitment and you’re not
progressing on your DEI journey. We are starting
to help our customers on that journey with an
assessment tool and consulting resources so we
can help them progress in their DEI maturity.
Are there risks or pitfalls for businesses in the
quest to make progress in DEI?
Oltmanns:
Yes, absolutely. I specialized in
the legal advice related to DEI for the last 14
years. What we want to do is to make sure our
customers understand there’s a risk of a lack of DEI
commitment. But there’s also risk if you approach
DEI in the wrong way.
We are seeing an increase in reverse
discrimination claims. We’re seeing an increase
in shareholder derivative lawsuits for boards and
organizations with senior leadership that did not
take the right steps to make sure their organization
was on the right track with DEI.
There are claims against organizations who’ve
made a public statement, who’ve made some kind
of a commitment but then didn’t actually put the
right actions and process in place to implement
what they said they were going to do.
How are insurers in your state using gender?
Gaffney:
There are several states that no
longer allow gender as a risk classification. Those
decisions were not necessarily made because of
what we are encountering now with adoption of
non-binary driver’s license classifications. We are
engaging with industry and sharing what we see
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Kevin Gaffney
Vermont Department of Financial Regulation
on the horizon as potential societal headwinds
challenging them to continue with that
convention. For someone to walk in an insurance
agent’s office, the assumption that they’re
male or female is no longer an appropriate
convention. It’s something that we potentially
see on the horizon that industry should start
preparing themselves for, no longer relying on
that risk classification.
This is at a time when insurers are developing
a variety of sophisticated rating models that allow
them to rely on more appropriate and more direct
risk-related classifications. This as an evolving issue
that should be monitored.
What DEI-related outreach opportunities is
your department currently working on?
Gaffney:
In Vermont, each agency has a
DEI liaison with the DEI director at the state.
Within the insurance division also, before the
establishment of the DEI liaison, DFR had an
outreach program for a number of years.
That outreach program is designed for two
primary areas of focus: financial literacy for young
adults and protecting the vulnerable population,
usually the elderly, from fraud and other activities.
Now we see DEI activities as a third component
and an opportunity to incorporate into our
outreach. Our outreach, because of the pandemic,
has been virtual. We look forward to moving
forward with more in-person outreach and
education.
BR
Asset Management & ESG
For ESG Investors,
It’s Getting Easier to Be Green
The environmental, social and governance movement raises many
challenges for insurers, including: Do green investments come at the
expense of return and a whole raft of future uncertainties?
by John Weber
“Sometimes, the debate on ESG
tends to be very black and white,
with a very moral sense. I am
fond of saying that it’s 50 shades
of green that you should be
thinking about. It’s not quite black
or white. There is a spectrum.”
Ashish Dafria
Aviva
E
nvironmental, social and governance
investment is a journey that will not happen
overnight, according to industry experts.
The asset management movement is also
a collective effort encompassing the insurance
industry, policyholders and regulators.
Ashish Dafria, chief investment officer, Aviva;
Stewart Foley, managing partner,
Insurance AUM
Journal
; and Bryan Falchuk, managing partner of
Insurance Evolution Partners, took part in a panel that
examined the challenges of ESG investing. Following
is an edited transcript of their discussion.
A little over a year ago, Aviva became the first
major global insurance company to target net
zero carbon from investments by 2040. How
do you plan to do this?
Dafria:
We clearly wanted to show leadership.
John Weber
is a senior associate editor. He can be reached at
john.weber@ambest.com
.
There was an acknowledgment of humility in that we
don’t have a fully mapped-out, detailed plan that can
spec out our net zero to a future point—2040, 2050, or
any other time. There is also a statement of ambition in
there that, “Yes, we have some assumptions. We don’t
know exactly how we will get there, but we think we
need to try harder.” In our own operations [and supply
chain], the announcement was we aim to get to net
zero by 2030, and that’s [the] somewhat easier part.
The harder part is what’s in the jargon—we call
Scope 3, which is our own investments. That’s where
I come in as the CIO. That’s where our ambition is,
to get to net zero by 2040. It is a tall order. There are
challenges in doing that. The key way we are looking
to get there is probably threefold.
One is by engaging with the companies that we
invest in by bringing them along on the journey,
by working with them, partnering with them.
The second part, which goes somewhat hand in
hand, hopefully not too often, by moving away
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from companies with investments where we think
the risk is too pronounced and the actions being
taken are not sufficient—companies who are not
on their journey, not on their path. Third, by more
proactively, more directly investing in the investments,
companies, solutions that benefit from this transition,
that are part of that getting to the green.
With a mixture of those three, with a lot of
trepidation on my part, with lots of uncertainties,
that’s how hopefully we’ll get there.
Why does implementing an ESG strategy
matter and how will returns be affected?
Dafria:
Sometimes, the debate on ESG tends to
be very black and white, with a very moral sense. I
am fond of saying that it’s 50 shades of green that
you should be thinking about. It’s not quite black or
white. There is a spectrum.
ESG is not a moral statement on my part as an
investor. It’s a risk management statement on my part
as an investor, that there are risks, and how do we
measure them? It’s somewhat not dissimilar to, “Well,
we will be looking at risks of companies going bust.”
No one will ask me the question, “Well, why do
you analyze risk of companies going bust? How will
it impact the returns?” We are firmly of the camp that
we practice ESG. The way we practice it is with the
intention of enhancing our risk-adjusted returns.
Will we get it right every time? No, clearly, we
won’t, especially on a topic such as ESG, where the
funnel of uncertainty is wide. We are looking to do
it because we think it’s in the best interest of the
customers whose money we manage.
Where are U.S. insurers on their ESG journey
versus their European and Asia-Pacific
counterparts?
Foley:
They’re probably behind, but making a very
concerted effort to catch up. I remember sitting in
CIO Eric Kirsch’s office at Aflac a few years ago, and
he brought up ESG as one of the emerging issues and
talked about that exact difference in where they are
in their journey.
No industry has more to gain or lose from
climate change and weather extremes. Insurance
companies—they’re insuring wind, and hail, and
floods, and all sorts of things that, clearly, they have
an economic impact. Forget about the social aspects
of it, or the environmental aspects of it; from strictly a
business perspective, it makes sense.
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The challenge is insurance companies get paid to
make long-term promises, and long-term assets are
bought to fund those long-term liabilities. You can’t
snap your fingers and turn the Queen Mary and wash
out all the ESG investments and suddenly restructure
for a myriad of reasons that people who understand
managing insurance assets understand it takes time.
There are major challenges. For example, there’s
no standard by which to judge. There’s no numerical
score. It’s challenging for insurance companies. They’re
motivated, they have the right ideas to do it, but the
devil is in the details as far as implementation goes.
Is there a way to quantify the ESG component
of a particular investment?
Foley:
There are people who want to sell you data
that has a score attached to it. If it was that simple,
it would be great, but people disagree on how to
measure. It’s challenging. When you have a portfolio
that’s the size of some of the global insurers’ there are
a lot of assets and a lot of facets to each one of those
assets to see where they line up on an ESG spectrum.
It’s a very difficult problem.
For insurers, are the results worth it when it
comes to ESG investing?
Falchuk:
When I talk about ESG investments,
I have some folks who say, “Yeah, those are great
returns, great investment opportunities,” and others
who say, “No, the returns are not equal to the more
traditional sectors and investments that are less
positive on the ESG scale.”
There’s subjectivity to it still. There are some things
we can agree, probably not a great thing, from an ESG
Stewart Foley
Insurance AUM Journal
Asset Management & ESG
standpoint, or probably a better thing, from an ESG
standpoint. In today’s world, many of those returns
are more stable and stronger in the more traditional
maybe negative ESG investments.
We’re not here for the short term and that’s what
makes this moment a bit different and perhaps harder
is we’re in the point of transition. Yet we don’t know
what the ultimate long term looks like.
Is ESG investing volatile right now simply
because these are not mature investments?
Falchuk:
There’s an aspect of that. We’ve all been
dealing with unsettled times for some time—a financial
crisis, COVID, take your pick. There’s always things that
when you have something new, that’s volatile enough,
and then the context into which it’s starting up only
makes that worse. We’re living in quite a bit of that
right now, and that makes it tricky. Let’s not forget 1999.
Many of those dot-com companies don’t exist anymore
but there are a few that do. If you stuck it out with
them, you would be in a tremendous place—including
a couple of them who are now the richest people in
the world.
Can you structure insurance coverages to
create better ESG outcomes for insureds?
Falchuk:
This is where our industry has an even
greater impact: Our investment dollars are massive
and can move markets, and we shouldn’t downplay
that. The reality is the entire economy rests on our
product, on the insurance that we provide.
What we’re willing to insure or not is one
question. There’s a lot of debate about that. “Do
Bryan Falchuk
Insurance Evolution Partners
you insure oil rigs?” for example. That’s right or
that’s wrong. People get very black and white on
it. What if you say you do cover them, only you’re
going to change the way they operate if they want
coverage? Maybe they have options today, but a
couple of years from now, they may not, so they’re
willing to make the changes you’re asking of them.
There’s got to be a number of different ways
to integrate ESG investing. In fact, Ashish
used the term 50 shades of green.
Foley:
The Principles for Responsible Investment
has got a very robust campaign to get insurers to
become signatories. One of the things that we’ve
talked about today is this idea that they have made a
solid pledge, and it is quite a ways into the future.
2040 is quick, but it’s not today. You don’t have to, “To
sign up, I’ve got to go today.” When you look at 50 shades
of green, we’re going to get there over time. Insurers are
typically not reallocating huge portions of their portfolio.
They’re investing cash flow at the margin of where
it comes in. This different lens of looking at where to
allocate those dollars will get us greener over time.
How do we get on the ESG journey?
Dafria:
There are three things reflecting on our
experience as we have started the journey: No. 1, by
recognizing that we can’t get there alone. We need
to work with the companies that we invest in, with
our peers, with the regulators, with the community
broadly.
It’s a collective effort, so that’s quite important. I
am managing, directly or indirectly, money on behalf
of my policyholders, so I need to reflect their journey
in many ways. No. 2, by having courage of your
conviction, by making some investment decisions
which are probably slightly more ambiguous than
your normal investment decisions. Therein lies the
opportunity. The messiness always is a place where
you can differentiate investment returns.
No. 3, by
being open, too, with yourself, with your organization,
with your stakeholders that, “Not everything I’m doing
will turn out to be right. There are 15 things in my list.
At least three of them will be probably not the best
course of action in hindsight.”
I can’t wait for having that perfect vision until I
start taking action. 2040 is really, really near when
I am thinking about a large portfolio to move. It’s
combined, those three. I’m as confident as I can be.
We are on that journey quite firmly.
BR
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