Leadership Perspectives: ESG in Insurance featuring Rohit Puranik, SVP and Head, Insurance Americas
ESG, while has come about to be synonymous with climate changes and sustainability in business, is in fact a broad theme that brings three different pillars of environment, social, and governance under one roof. This is part of the reason why it has been so difficult to drive ESG focused initiatives and measure them. Organizations have been taking initiatives in some form or the other for a long time, be it pushing for a more diverse and inclusive workforce, enforcing stricter practices for better governance, or undertaking CSR efforts to achieve environmental improvement. Thes initiatives are varied and oftentimes qualitative, making it difficult to measure and report on the impact of these initiatives. To uncover the enigma of ESG for insurers, we will be interacting with business leaders and analysts to get their perspective on the topic, attempting to bring some structure and actions that carriers across the globe can undertake to achieve their ESG goals.
To kickstart this series, we have Rohit Puranik, SVP and Head for Insurance Americas at Tech Mahindra, to share his point of view as a business leader.
Why is ESG relevant now in the insurance sector?
ESG holds significance not only for the insurance industry but also for society in general. Government, private sector, and the public are all taking notice of this. ESG initiatives are picking up pace. We now want to ensure that everyone achieves carbon neutrality by 2050, as per the Paris Agreement. Previously, this was only a topic of discussion in boardrooms and limited to reporting, but now the focus is on how can we transition to net-zero quickly. Many companies view this as an opportunity as trillions of dollars are expected to be invested towards ESG, making it a favorable circumstance for insurance carriers and other businesses. Thus, it is crucial to discuss and address this challenge, as it is the need of the hour and presents a significant opportunity.
Are there any immediate business benefits that insurers can expect?
There are three reasons why companies and carriers are trying to do it now.
First is the regulatory requirement . Organizations have been asked to become more conscious of their environmental and social impact, and they must follow these directives . For example, the SEC in the US is currently developing new ESG disclosure requirements for publicly traded companies. These rules will require companies to disclose their climate-related risks and opportunities, as well as their governance and social factors. And more countries are taking note, driving their own initiatives.
Second is the competitive advantage. Speaking about the insurance sector specifically, risk assessment and underwriting via new and forward-looking technologies can put insurers ahead of their peers in the next 5 to 10 years as these practices have not been used in the last 30-40 years . For example, insurance companies are still hesitant to offer coverage for electric vehicles (EV). EVs are still a relatively new technology, and there is limited actuarial data available for insurers to use in determining risk and pricing policies. But companies can gain a competitive edge by positioning themselves as industry leaders in the growing market for green technology. As EVs become more popular, insurance companies can differentiate themselves from competitors by offering tailored coverage plans and pricing models that specifically cater to EV owners. And this is just one example of this.
The third element is how it helps in the positive branding of the organization. For example, a leading global insurance company announced that it would divest from the tobacco industry and stop insuring coal-based businesses, citing the health and environmental risks associated with these industries. These initiatives helped the organization to build a strong brand reputation and differentiate itself from its competitors. The company was recognized for its leadership in sustainability and social responsibility, and it has received numerous awards and accolades for its ESG efforts. Adopting ESG initiatives also resulted in positive financial outcomes, including improved investor sentiment and increased customer loyalty.
Based on your conversation with insurers, what are some key insights on where they are heading with their ESG initiatives?
Undoubtedly, numerous discussions have taken place concerning the ESG initiatives among various clients and carriers. However, the extent of these initiatives can vary significantly among carriers. For instance, a large commercial Property and Casualty carrier based in Hartford has made considerable progress in this area, as demonstrated by their impressive sustainability report. Conversely, smaller carriers may still be in the discussion phase and have not yet begun to address these issues openly. Nonetheless, it is evident that there is traction in this area. While it may not be as prominent as what we observe in other industries like manufacturing, automotive, or retail, insurers do possess assets where they have invested. As they underwrite companies that may not be eco-friendly, by directing their focus on the customers they insure, they can influence the push towards achieving ESG goal.
For a service-oriented business such as insurance, how can organizations measure the impact of ESG initiatives?
Businesses will need to redefine both the business model as well as the technology landscape. For this, there are some immediate actions that insurers can take.
First is the usage of data. Data has become increasingly significant in the insurance industry's efforts to promote ESG alignment. Data allows insurers to make informed decisions regarding which companies to underwrite based on their alignment with ESG goals. Take the example of a coal manufacturer, which at first glance may not appear to be an ESG-friendly company due to the carbon monoxide emissions associated with coal extraction. However, by analyzing the company's efforts to reduce emissions and replace greenhouse gases, insurers can decide whether to underwrite them or not. This allows insurers to wield their influence by encouraging companies to adopt more ESG-friendly practices. In conclusion, data analysis is a vital tool for insurers to promote ESG alignment and drive positive change across industries.
Second is to build focus on the long-term actions. With ESG at the center, there are new products, for instance EVs, which bring with them a different and in some sense an unprecedented kind of risk. As discussed, currently there is not enough expertise in the market to understand and assess these risks better. Consequently, insurers need to start working on creating new products and platforms that will underwrite these new assets.
The third imperative for insurers is to determine how they will measure the impact. One possible solution is for insurers to form partnerships with third-party companies to gain a better understanding of the overall ecosystem. By doing so, they can compare the practices of Company A versus Company B across the entire value chain. However, this will require significant investments and careful consideration to ensure that the investments are directed towards the most effective solutions and are going in the right direction.
What kind of partnerships can insurers pursue to enable these actions?
Data would be the core these partnerships, there are various ways that organizations can collaborate with others to leverage data in the pursuit of sustainability goals. You can build a partnership to track emissions for your own organization and take steps to reduce or offset them. For instance, data centers do generate a lot of emissions. So, a partnership around cloud and data center sustainability with hyperscalers is a potential opportunity. Another example would be partnering with a technology service provider to enable remote working at scale, allowing reduced emissions by drastically eliminating office travel and conserving energy.
The examples mentioned are just the tip of the iceberg when it comes to potential sustainability partnerships.
Insurers need to have the right technological infrastructure to make right business decisions. What can a service provider like Tech Mahindra do to help them on this journey?
Companies like TechM have a very critical role to play. When considering a carrier's needs, they are typically seeking a partner who can assist with delivering accurate sustainability reporting and providing a comprehensive evaluation of their risk-taking behaviors. Our services can address these gaps and offer various ways to support carriers in achieving their goals.
Our consulting services cover a range of areas including compliance strategy financing for sustainability, eco-innovation, and audit verification and validation. We also offer solutions for process optimization such as emission reduction, energy monitoring, sustainable supply chain, traceability, and digital passport.
It's high time that insurers start taking a hard look at what is really required and start driving some of these sustainability or ESG initiatives within the enterprise.
