While insurers plan more ESG investment, survey finds challenges

Just under 80% of American insurers plan to increase their ESG investment over the next three years, according to a new survey from global conglomerate KPMG. There are a number of challenges, though, including using data to figure out exposure.

Sean Vicente, office managing partner, Audit, KPMG, called attention to the survey’s findings during a webinar discussing the Securities and Exchange Commission’s (SEC) proposed climate change that were adopted last month, but are currently stayed.

Although that ruling has been voluntarily stayed by the SEC, KPMG assembled a panel of experts to discuss the proposal, related changes and climate change trends in the insurance industry.

“Believe it or not, the climate risk insights have to become very dynamic over a period of time, and that has to be incorporated within your operational decision-making,” Venki Kumar, panelist and advisory director at KPMG, said.

He said that, soon, the exercise of completing an assessment and reporting to a regulator will not be enough on its own.

“That is not going to be sufficient for you to be relevant in the market or even to sustain your competitive advantage,” he said.

Insurers not backing down from ESG

In its survey of 33 public and private insurance organizations, 79% said they plan to increase their ESG investments over the next three years.

At the same time they plan to increase ESG investments, 79% said they also plan to do major organizational restructuring to better align with ESG goals, with survey results showing a trend of moving toward an integrated approach to ESG within a company.

However, the survey also found an inconsistency as while “the overwhelming majority” of firms seem to be taking ESG seriously, they also seem to overestimate how advanced their approach is.

While 76% of insurance firms viewed themselves as being ahead of their peers, 61% of those same firms were still using outdated tools such as reporting and spreadsheets.

“It seems to be a little bit of an inconsistency in maybe where they are in that process,” Vicente said.

Lack of adequate information or resources were also the two top challenges insurance companies said they face with ESG.

Fifty-two percent of respondents said their top challenge is inadequate understanding of ESG standards and requirements, while the remaining 58% said their top challenge is insufficient resources and capacity.

Data is king

Survey results also showed insurers have a clear preference for using advanced data and artificial intelligence in their ESG approach.

Fifty-seven percent of leading organizations use advanced data systems for ESG reporting, while 61% plan to improve ESG data collection by leveraging AI, 58% see improving ESG data management and reporting capabilities as helpful in integrating ESG goals with business objectives.

Additionally, the top areas for future ESG investment include data collection and management tools (45%), external consulting or advisory services (45%) and dedicated ESG personnel (33%).

“The survey also made it really clear that data is king and the ability to sort of introduce automation and AI improve efficiency, reliability, anything we can do is really critical,” Vicente said.

Data, insurance climate trends

Vicente, Kumar and their fellow panelist Ian Sterling, principal, Advisory & Actuarial, KPMG US, noted that the increasing use of data has also been a consistent theme among other insurance ESG trends.

They said this is particularly the case when it comes to reassessing exposure management and considering alternative solutions in the face of significant increases in property & casualty insurance policies and lower coverage from reinsurers.

Sterling noted that accurately using data to figure out exposure is “really one of the biggest challenges in the industry right now.”

“While there’s good, robust data and accurate models around traditional caps such as hurricanes, there’s not as much data. There [aren’t] as robust models around severe convective storms, and this results in more unknowns around cap projections,” he said.

Kumar added that firms have to grapple with shifting ESG legislation, climate change and the impact of climate change on their clients all at once. He said data and analytical models will be key in addressing this.

“You are going to need a number of different models, not only to think about how to assess the sensitivity and severity of the different climate hazards in the short to long term, but how to assess the exposure, where are the vulnerabilities, what actions to take and how to go about it,” he said.

This requires the integration of multiple models, Kumar noted, but insurance companies can face difficulties in the absence of a uniform standard on how these models can be built and integrated.

“There needs to be a way for you to look at how different models inform different aspects of the decision and [determine which to] pick to be able to consistently leverage that across the organization,” he said.

KPMG is a global firm offering audit, tax and advisory services in more than 143 countries. It employs more than 270,000 people and serves the needs of the public sector, private sector and NPOs.

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at rayne.morgan@innfeedback.com.