Who is the first person to receive a distress call when a business is inundated by floodwaters or leveled by a wildfire? Insurance broker or agent. Now, I believe mediators have a critical role to play in building and supporting more climate-resilient communities. If brokers can help their clients better manage environmental risks—a key pillar in ESG—they can better fulfill their advisory role.
Simply looking at climate change in isolation is problematic because it has major implications for the S-pillar of ESG. All too often, it is minority communities that are most at risk and most insecure. Climate change and environmental hazards affect every single person on this planet – not just the insurance buying community. Brokers need to be aware of this and be proactive in how they help build resilience – through insurance coverage and risk mitigation – in their communities.
This point relates to the wider topics of diversity, equality and inclusion (DE&I) – perhaps the focal point of the S pillar, and another area of great importance to insurance agents and brokers. IN Insurance Business we talk to insurance executives on a weekly basis about the importance of DE&I and the tremendous benefits it can bring to a business. The bottom line is that insurance agents and agencies with diverse teams generate the best results because they are able to attract and retain a more diverse clientele. It’s a no-brainer if you ask me.
As for governance – the G pillar – this is nothing new to those in the insurance industry. Insurance agents, brokers and carriers have developed robust governance structures over the years, responding to evolutions in regulation and compliance, and increasingly using tools such as data and analytics to understand the impact of risks – including E risks and S – on their balance sheets and business portfolios.
So that’s how I would summarize the direct impact of ESG on insurance agents and brokers – but there are a few other important things to consider.
First and foremost, businesses (aka clients) and their customers are voicing concern about ESG-related issues and taking action within their organizations. The simple equation is: an ESG-conscious client will not want to work with an ESG-blind broker. To cover all the bases, I think it makes sense for brokers and agents to get ahead of the pack so they are considered thought leaders and frontrunners in all things ESG. Only then will they meet the growing expectations of their customers around these issues.
Another important element is that many insurers are now incorporating ESG into their organizations and business strategies. For example, the race to net zero carbon emissions could not be more evident in the insurance industry, with every company seemingly trying to beat the competition by announcing shorter transition plans. Like clients, operators on the ESG path will not want to hinder their progress by working too closely with a broker or agency that has lagged behind on ESG.
Also, insurers are starting to incorporate ESG into their insurance strategies – in some cases, completely changing risk appetite. Again, this is important for brokers and agents to consider. For example, insurers may wish to only cover companies with certain ESG procedures and may exclude seemingly ‘dirty’ industries such as oil and gas. Brokers with large energy portfolios or other challenging ESG risks may need to re-examine their market strategies and educate themselves on mitigating actions. All of this is important for brokers to understand so they can prepare their clients to go to market and provide the best possible insurance solutions.
Here’s my two cents on why insurance brokers and agents should care about ESG. This is still a relatively new concept, and we are all learning about it every day. If you have any thoughts on why ESG is a top business priority for your agency or brokerage, please let us know in the comments section below.