Environmental, social, and corporate governance to increasingly influence insurers’ strategies

The underwriting and investment strategies of insurers will be increasingly influenced by environmental, social, and corporate governance (ESG) considerations, according to a new report by US credit rating agency Fitch Ratings.

These changing strategies could eventually reshape some insurers’ credit profiles, potentially with implications for ratings.

Property and casualty (P&C) insurers have experienced large weather-related losses, highlighting the increasing environmental physical risks that many experts link to climate change. Fitch Ratings said they anticipate P&C (re)insurers to increase premiums, and, in some cases, pull back from the market as underwriting risks increase and become more unpredictable.

Climate-related transition risks are likely to reduce returns on assets related to carbon-intensive industries held in insurer investment portfolios and will then influence insurers’ investment strategies.

Life insurers will be more affected given the longer duration of their portfolios.

Environmental risks have been the focus this year due to the number of wildfires and windstorms seen, but social risks are also important ESG considerations for insurers. For example, the mis-selling of investment-orientated products and governance risks, like intra-group transactions, must be remembered.

Fitch Ratings expects the sector to continue insuring industries with high environmental risks as they become more sustainable. However, the credit rating agency says that the worst-affected businesses and households may need to access new government insurance schemes or may struggle to obtain insurance.

Chris Price from Sirius Point spoke to ITIJ about the future of the insurance industry, including ESG.