Insurance CROs Diverge on ESG and Climate Readiness

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In a new joint report from Ernst & Young (EY) and the Institute of International Finance (IIF), based on interviews with CROs or other senior risk executives and survey data from 68 insurance carriers (spanning Property & Casualty, Life, Health, Reinsurance, and Specialty) across 15 countries (by headquarters, 54% in Europe and 22% in North America ) collected from September through November 2023 , EY and IIF found that ESG and Climate issues remain central on the risk management agenda, but with a divergent trend in readiness.

More than two-thirds (69%) of CROs surveyed are integrating ESG into their risk management framework, and 87% are incorporating ESG standards into investments. More than half (53%) cited ESG-related investments and rewarding positive ESG behavior (34%) as the leading products or features with the most growth potential.

In contrast, when asked about the maturity of a company’s understanding of its exposure to physical and transition risks of climate change, only 3% felt they had a complete understanding of these risks, and just over a third (36%) stated that climate risk is being integrated into business strategy – although many noted an efforts underway to drive business integration.

“With record-breaking natural catastrophes in 2023, the pressure on carriers to tackle the increasing multibillion-dollar protection gap is compounded by shrinking budgets and scarce talent to tackle some of the most pressing climate-related disasters our generation has faced” stated Isabelle Santenac, EY Global Insurance Leader.

“Faced with complex risks, rapid technological advancements and resource and talent constraints, our survey results highlight the resilience and adaptability of insurance CROs and their strong commitment to digital transformation,” said Mary Frances Monroe, director, insurance regulation and policy at the Institute of International Finance. “The insurance CRO community is also integral to companies’ ESG integration efforts, which are crucial for addressing climate-related risks.”

The report notes that the events of 2023 have increased the pace at which insurance carriers have sought to strengthen their front line with risk management practices, with 59% of respondents improving their liquidity management policies, procedures and practices and more than half (56%) updating their asset liability management (ALM) framework, in the last 12 months. Looking ahead, more than 90% of respondents plan to evaluate or implement responsive financial (e.g., credit, market, liquidity) and non-financial (e.g., operational) risk management initiatives over the next 12 months.