Increasingly, insurance firms are integrating ESG data into their underwriting processes in response to growing pressure from stakeholders.
This shift isn’t just an exercise in compliance – it’s transforming risk assessment, underwriting profitability and product innovation.
As insurers navigate a landscape where ESG factors influence long-term sustainability, their ability to adapt will determine their competitiveness in an evolving market.
ESG considerations, once an afterthought in insurance, have now taken centre stage – but why?
The growing demand for accountability and transparency from investors, regulators and customers has compelled insurers to embed ESG into their risk models.
This shift is particularly evident in the Property and Casualty (P&C) sector, where firms are leveraging ESG data to assess the sustainability of properties and the risks associated with them.
Paul Richmond, Head of Customer Success at Novidea UK, is one expert that understands the importance of better access to ESG data when shaping insurance models.
“The London market, renowned for covering all types of risks, plays a pivotal role in supporting innovative products that address ESG-related risks,” he says
“To enhance its awareness of sustainability risks and their financial implications, particularly in the context of long-term models, it is essential to improve access to data and ensure it is easily consumable.”
A PwC survey further reinforces this shift. It shows that 85% of global insurers have begun to acknowledge that ESG will impact their operations.
Investment decisions, risk management, internal audits and underwriting are all areas that experts believe will undergo some pretty significant changes as a result.
As insurance firms start to integrate principles of ESG into their operations, they are also beginning to see the kinds of applications that ESG can have beyond traditional insurance models.
Cyber underwriting, for example, is a rapidly evolving sector which is incorporating ESG data to assess risk exposure more and more.
Melanie Hayes, COO and Co-Founder of KYND, talks about how ESG is reshaping risk assessment in this field.
“ESG data is increasingly shaping the future of insurance, especially in cyber underwriting, by redefining how insurers assess and price risks,” she explains.
“Beyond traditional metrics, ESG insights illuminate systemic vulnerabilities – such as weak governance frameworks or unsustainable digital practices – that in today’s digital-first corporate environment elevate cyber risk exposure.”
By considering ESG factors in cyber underwriting, insurers can move beyond conventional risk models and adopt a more holistic approach that accounts for governance structures, ethical digital practices and environmental sustainability.
Despite its potential, ESG integration in underwriting is not without its challenges.
A recent report by Capgemini found that fewer than half of P&C insurers have fully incorporated ESG data into their processes.
The reason for this is that, oftentimes, ESG data is not as robust as many insurers would like.
“The first and foremost challenge in integrating ESG data into cyber underwriting is the fragmentation and inconsistency of ESG data, which lacks standardised metrics, complicating meaningful comparisons across organisations,” Melanie explains.
Then, there are the technological constraints that many insurers have to work with. Many of them still rely on outdated systems that are ill-equipped to process ESG-related insights effectively.
“Without unified platforms, data risks remaining in silos, mirroring inefficient systems of offline spreadsheets and manually processed reinsurance schedules,” Paul argues.
So, how can companies overcome these problems? In short: investment.
It’s becoming clearer that companies must invest in technology that enables seamless integration of ESG data into underwriting models.
Only by overcoming these hurdles can the industry fully capitalise on the potential benefits ESG offers in risk assessment and long-term sustainability.
Looking ahead, one thing is clear: ESG data is expected to become an integral component of underwriting strategies.
With regulators pushing for more stringent ESG disclosure requirements and investors prioritising sustainability, insurers that fail to embrace these changes risk being left behind.
Firms that effectively harness ESG insights will not only improve risk assessment but also enhance their appeal to investors and clients seeking sustainable, future-proofed solutions.
"By intertwining ESG data with underwriting models, insurers will be positioned to lead the charge in embedding responsibility into the digital economy’s foundation," Melanie says.
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