SUSTAINABILITY IN INSURANCE

R&C: To what extent are sustainability issues now firmly on the insurance industry’s radar? Why has it climbed the boardroom agenda in recent years?

Handy: Sustainability is now being regularly discussed by boards as a key part of the corporate strategic agenda – in particular, around the suitability of the investment portfolio, and for which client types, if any, the insurer might wish to reduce its exposure. One key accelerant in the last 18 to 24 months has been the inbound interest that customers, or partners, have shown in the industry’s environmental, social and governance (ESG) footprint. Pension trustees – when looking to transfer liabilities to insurers – are now asking substantive questions as part of their selection process. And retail customers, perhaps for the first time, are contacting their insurer to ask about the uses to which their money is being put.

R&C: To what extent are regulatory initiatives driving sustainability-related measures for insurers? What recent developments have you observed?

Handy: While we are seeing insurance companies embrace sustainability for what they see as good solid commercial sense, there is a limit to how far and how fast a private enterprise will move. It helps that regulators are setting explicit and timebound objectives, which form a catalyst for action that the private sector might generally wish to take but cannot take in isolation from competitors. Some of the regulatory and legislative changes, particularly the European Union (EU) Sustainable Finance Disclosure Regulation (SFDR), are serving to bring a collective focus on data quality, which needs to be addressed if financial services firms are to confidently put sustainability at the heart of their business processes. The upswell in compulsory requirements has also contributed to a deeper take-up of voluntary commitments that have been an option for some time – for instance, more companies are signing up to the United Nations (UN) Principles for Responsible Investment (PRI).

Apr-Jun 2021 Issue

FTI Consulting