ESG in insurance: Strategy and transformation

Insurers are increasingly recognising their role in advancing the ESG agenda, but it will require a practical, purpose-driven strategy.

Insurers are increasingly recognising their role in advancing the ESG agenda.

Leading insurers see ESG as an opportunity to further reinforce their position and drive positive change. They increasingly recognise their role in advancing the ESG agenda, not only through products and investments, but also within their own organisations, across their customer base and throughout the broader ecosystem. Yet many are struggling to set ambition, prioritize activities and cascade their vision across every division and function.

In this report, KPMG professionals explain how insurers can design and deliver an ESG strategy that not only meets compliance requirements, but also delivers significant competitive advantage. We highlight key challenges for insurance organisations, demonstrate examples of where businesses are getting it right, and offer some insights to help compose an ESG strategy that is purpose-driven and tied to overall business objectives.

ESG in insurance: ESG and transformation

Discover how insurance organisations can deliver significant value and a competitive advantage with a practical, purpose-driven ESG strategy.

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Why ESG is strategically important for insurers

Investor, customer and employer sentiment is shifting. And insurers understand there is a cost to taking a ‘wait-and-see’ approach to ESG — both from a financial and a reputational perspective. Many are facing increasing pressure to deliver on commitments they’ve made, particularly on the climate agenda.

At the same time, regulation has also been a key driver for many insurers. As regulators increasingly start to focus on climate and ESG risks as prudential risks, a series of new ESG regulations are being developed and issued around the world.

44% of insurance CEOs agree that ESG programmes improve their financial performance.

Where insurers are focusing

While many insurance organisations are at different stages on their ESG journey, significant activity can be seen across two main focus areas:

Leading insurers are using an ESG lens to enhance how they conduct their own business.

Governance:

Asset management:

Delivering net zero:

Insurance organisations are using ESG capabilities and experience to help their clients and stakeholders on their own ESG journeys.

Product innovation:

Better risk awareness:

Enabling employees:

Incentivising portfolio companies:

Tips for accelerating the insurance ESG journey

While much of the focus of ESG tends to coalesce around the `E', the reality is that many ESG topics are interlinked. Pulling one lever could have a positive or negative effect on another.

For some, making the connection between ESG and their role within the insurance entity might be difficult. Ensuring your talent feels connected to the journey can be a key to success.

Besides the investment portfolio, insurance companies have an opportunity to support their clients with setting their ESG strategy and help them transform towards a sustainable business model.

The consequences of getting things wrong or of being accused of ‘greenwashing’ will likely keep many executives awake. Making sure that data is reliable, processes are well designed and controls are robust will be key.

The ESG strategy is based on the organisation’s ESG ambition. But don’t let ambition stall you. And it is perfectly reasonable to have higher levels of ambition in certain areas.

Here are 10 considerations for insurance organisations to review as part their ESG strategy:

Do you want to be an ESG leader, follower, or just meet requirements?
Which markets, segments and industries pose the greatest growth opportunities for value creation?
What are the challenges and opportunities in your current portfolio?
What are the expectations of your clients and distributors?
How do the current processes in your organisation support our ESG ambition in terms of underwriting, handling claims and making investments?
Do you have the infrastructure and capabilities needed to achieve your ambition?
Do you have access to the right data and analytical tools to generate actionable ESG insights?
Is your structure and governance fit for purpose and do you have robust frameworks, reporting and controls in place?
Are your strategy, values, purpose and culture aligned? Are employees supportive?
Do you have the ESG data needed to accurately track progress, meet your reporting needs and incentivise outcomes?