ESG can help insurers reaffirm their importance to society: PWC
Insurers have a unique responsibility to influence their customers and accelerate ESG outcomes, according to a PwC report titled ESG and Insurance. If they rise to this challenge, it could strengthen their customer relationships and reaffirm their role as an essential link in society, the report said.
Written by Christine Korwin-Szymanowska, Jon Williams, Xavier Crépon, Andrew McDowell and James Boyers, the report argued that “ESG can only be a good thing” for insurers.
“Narrowly defined, the transition to a low-carbon economy presents risks for insurers who do not adapt their business model and products,” it said. “But it also provides significant opportunities for those in the insurance sector that address these topics.”
PWC admitted insurers face a challenge in the form of increasing pressure from stakeholders to demonstrate they are serious about tackling ESG, particularly where they do business with sectors with poor ESG track records.
“Driven by factors such as climate change, social inequality and the impact of COVID-19, and amplified through social media platforms, ESG has become front of mind for all,” the report noted. PwC UK’s 24th annual CEO Survey revealed that 70 percent of UK CEOs are concerned about climate change, up from 44 percent in 2019.
Climate change is also increasing the frequency and severity of extreme weather events and making it harder to underwrite some classes accurately in the medium-term, the report noted.
However, insurers are particularly well placed to tackle emerging risks and trends in the industries they underwrite, including ESG, PWC argued. Environmental and social challenges “go to the heart of the insurance sector’s role in society,” the report added, giving it a chance to make itself indispensable to clients.
The PWC report advised executives to think about the three elements of ESG - environmental, social and governance factors - separately, to simplify the job of developing strategies to tackle them.
“To avoid ending up with a long list of disjointed initiatives, executives should assess how impactful potential ESG actions are, versus their ambitions, stakeholder expectations, importance to business and risk management, and how easy they are to implement,” the report advised.
The report also highlighted challenges around measuring the effectiveness of ESG strategies. “There is still a lot to do to narrow the gap between the historical way of measuring performance, such as return on equity, or revenue growth, and the new, longer-term concepts coming with ESG,” it said.
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