US Insurers Increasingly Include ESG Factors in Their Decision Making

Stakeholder expectations that US insurers consider environmental, social, and governance (ESG) factors are playing a growing role in their decision-making, according to A.M. Best.

A Best survey found that 60 percent of US insurance companies indicated that stakeholder demands that they explicitly consider ESG factors in their decision-making are growing. Still, compared with their peers in Europe, the US insurance industry is in the early stages of ESG integration, Best said.

In surveying US property-casualty insurers, life/annuity insurers, health insurers, and reinsurers on their approaches to ESG principles, Best said it found that companies' ESG focuses vary by segment. While property-casualty insurers showed they focus more on environmental risks in their ESG efforts, life/annuity insurers said they concentrate mainly on investment risk. Health insurers have put greater ESG emphases on the social impacts of health equity to eliminate disparities in health outcomes, Best said.

The Best's Special Report, "US Insurers' Perceptions of ESG," indicates that the survey found all three US insurance segments focusing on corporate governance. "Survey results show that insurers believe there are risks to ignoring stakeholder pressures related to ESG factors, and particularly with regard to diversity and inclusion, insurers generally view corporate governance as key to managing and mitigating reputational risk," Rosemarie Mirabella, director at A.M. Best, said in a statement.

The Best survey found that between 40 percent and 50 percent of the US insurers and reinsurers surveyed—51 percent of stock companies compared with 42 percent of mutual companies—are actively engaged with ESG. Over half of the respondents in the property-casualty and life/annuity industries agreed that proper understanding and integration of ESG factors is increasingly critical to the long-term viability of their business, compared with 39 percent from the health insurance industry.

Best's survey found that insurers' integration of ESG factors into the investment process appears to be ahead of underwriting. Less than a quarter of survey respondents in each segment believe it is extremely or very important for underwriters to consider ESG factors in the underwriting process, Best said.