This is an issue that has been on our minds here at Insurance Business, and the answer that I have arrived at so far is as follows:
At a high level, environmental, social, and governance (ESG) issues are significant to brokers due to the obvious impact they have on the businesses of their clients. Just take a look at how recent years have been impacted by the likes of climate change and other types of extreme weather that fall under the E pillar. The insurance industry, on a global scale, has been forced to come to terms with the steadily increasing frequency and severity of extreme weather events, in particular floods, fires, windstorms, and severe convective (thunder and hail) storms. Specifically, this has been the case with floods, fires, and windstorms.
Who was the first one to accept a panicked phone call when a business is overwhelmed with floodwater or torn down by a brushfire? Who is the first person to receive a phone call? The person who sells or brokers insurance. Now, I am of the opinion that intermediaries have an important part to play in the process of developing and supporting communities that are more climate-resilient. If brokers are able to assist their clients in better managing environmental risks, which is a fundamental component of ESG, then they will be able to better fulfill their job as advisors.
The problem arises when one only looks at climate change in isolation because of the significant implications it has for the S pillar of the ESG framework. All too frequently, minority populations are the ones who are most at risk and who have the least amount of insurance coverage. The effects of climate change and environmental hazards are not limited to those who purchase insurance; they are felt by every single individual on the earth. Brokers have a responsibility to be aware of this and proactive in the ways in which they help to promote resiliency in their neighborhoods through the provision of insurance coverage and the mitigation of risks.
This particular issue is connected to the overarching ideas of diversity, equality, and participation (DEI), which is likely the primary focus of the S pillar and is another area that is of utmost significance for insurance brokers and agents. Every week at Insurance Business, we have conversations with industry professionals about the value of diversity and inclusion (DEI) and the great benefits that it can bring to a company. The overarching conclusion is that insurance brokerages and agencies who have varied teams are able to garner and keep a more diverse clientele, which in turn allows them to create the best possible results for their business. If you ask me, there is absolutely no question about that.
Those who work in the insurance sector are not unfamiliar with the concepts of governance, also known as the "G" pillar. Over the years, brokers, agents, and insurance carriers have developed robust governance structures as a reaction to changes in monitoring and enforcement. Additionally, these entities are increasingly using tools such as business intelligence to evaluate the influence that risks, which would include E and S risks, have on their accounting records and company investments.
To conclude, this is how I would sum up the direct influence that ESG has on insurance brokers and agents; however, there are several other crucial factors to take into consideration.
In the first place, companies (also known as clients) and their consumers are openly voicing their concern over environmental, social, and governance (ESG) issues and are taking action within their own organizations. The straightforward conclusion to draw from this is that a customer with an environmental, social, and governance (ESG) consciousness will not want to work with an ESG-blind broker. It makes sense, in my opinion, for brokers and agents to have a head start on the competition so that they are regarded as thought leaders and frontrunners on all aspects of ESG. This will allow them to cover all of their bases. Only then will businesses be able to match the ever-increasing demands of their clients about these difficulties.
ESG is being included into the operations of a growing number of insurance companies, which is another factor that contributes to the importance of this trend. For instance, the battle to reach zero net carbon emissions could not be more obvious in the insurance business, where every company appears to be trying to one-up the other by unveiling transition plans that are less time-consuming. Carriers that are on the path to ESG won't want to impede their own progress for the same reason that clients won't: they won't want to associate too closely with a brokerage or agency that is falling behind on ESG.
In addition, insurers are beginning to incorporate environmental, social, and governance considerations into their underwriting processes, and in some cases, this has the effect of radically modifying their risk appetites. Again, this is something that should not be overlooked by brokers and agents. For instance, insurers might only be willing to cover businesses that have a specific set of ESG practices in place, and they might avoid covering ostensibly "dirty" industries such as oil and gas. It's possible that brokers who have large energy portfolios or any other hard ESG risks will need to rethink their market strategy and educate themselves on how to mitigate the effects of these risks. It is critical for brokers to have a comprehensive understanding of all of this information so that they can adequately prepare their customers to enter the market and help their customers acquire the most advantageous insurance solutions.
That is, to put it simply, why I believe insurance brokers and agents ought to be concerned about ESG. This is still a rather novel idea, and each of us is gaining new information about it on a daily basis. Please let us know in the comments area below if you have any opinions on why environmental, social, and governance (ESG) issues should be a major business concern for your agency or brokerage.