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Insurers must understand what ESG means to them
ESG data has risen quickly up the agenda for Lloyd’s insurers. Many have recently defined their goals and approaches to sustainability in response to the rising expectations of shareholders, customers and the public, as well as the Lloyd’s Corporation – and data has a vital role to play.
Lloyd’s has committed to reach net-zero as a market by 2050 and requested all of its managing agents to establish an ESG framework in 2022. This has been something of a range-finding exercise for the market to understand what is achievable for managing agents and what best practice looks like. For many Lloyd’s companies, this was the first time they had attempted to formalise their approach to sustainability and/or ESG.
They should recognise that their strategies aren’t the finished article. They will probably need to be reworked in 2023 based on advances made in the past 12 months and as Lloyd’s hones its expectations on what these frameworks should contain.
Broadly speaking, a carrier can either define its ESG data strategy around a commercial opportunity or in response to regulatory requirements. Right now, the data landscape is too fragmented to define an evidence-based strategy around a commercial opportunity. The regulatory picture is fragmented too, but regulation is likely to move quicker than the data, so I suspect it will be regulatory reporting pressure driving ESG in the near term.
Many Lloyd’s players no doubt aspire to use ESG to identify opportunities and innovate. Once you understand a company’s transition plans, you understand their risks, and can begin to think about appropriate products and solutions. We may, for example, see climate litigation carved out of policies as a buyback as we have seen with political and cyber liability risks, with premiums driven by the insured’s governance, transition plans and achievements in hitting certain milestones. However, you need to leverage robust data to support these kinds of innovations. That’s why all the progress to date has focused on assessing where we are now rather than identifying and exploring opportunities.
For now, the focus for most insurers is to understand what ESG means to them and what they are going to do with ESG data when they get it. They must then socialise that within their organisations so that, down the line, when underwriters are required to ingest, analyse and make decisions based on ESG data, they have a clear view on the position they should take.