The commitment to environmental, social and corporate governance (ESG) frameworks is changing how insurance is sold.
An insurance buyer, an insurer, a reinsurer and a broker will explore the commercial reality of ESG in a panel session at the AIDA XVI World Insurance Congress Australia (WICA 2023).
The Australian Insurance Law Association (AILA) will host the international insurance law association AIDA’s flagship event on 30 August to 1 September 2023 at the Melbourne Convention and Exhibition Centre.
Australia has hosted the prestigious event – held every four years – only once before, in Sydney in 1994.
ESG panel participant Nigel Jones, Manager Insurance with Aurizon, says ESG requirements can be “challenging”, particularly for organisations involved in the mining sector.
That includes supply chain partners such as Aurizon, which is Australia’s largest rail freight operator. Its portfolio includes transporting coal from mines to ports and for domestic power stations.
Mr Jones says Aurizon’s presentations to potential underwriters for its annual insurance program have “a significant ESG component” and that has taken some of the focus from traditional underwriting.
“Sometimes it’s discriminatory. For example, if you have more than 30% revenue exposure to thermal coal, a lot of insurers won’t provide their capacity.”
Aurizon has been reducing its thermal coal exposure annually and this year it’s at 25% as it grows haulage volumes for future-facing commodities, but Mr Jones says insurers’ targets are likely to keep changing.
“Underwriting a risk on its merits is secondary to the ESG boxes that have to be ticked. Some insurers are probably frustrated by it, too,” he says.
“I’d like to see a line in the sand – currently there’s no certainty with insurers. Next year the thermal coal percentage may change, we don’t know. Potentially there are going to be many clients that will be unable to secure enough insurance capacity.”
Mr Jones will tell WICA 2023’s national and international delegates that clients have “a lot of hoops to jump through” to achieve insurers’ ESG requirements.
He says the industry needs to accept that “high-quality Australian coal will be around for decades, until we find a reliable alternative. Without metallurgical coal, we have no steel that is required for renewable energy applications such as wind turbines”.
Fellow panellist Paul Lacey, Senior Underwriter with Hannover Re, says ESG is well embedded within insurers and reinsurers. “It’s core to what the insurance industry has been doing for a long time.
“We support the liability side of the economy through catastrophe insurance for environmental disasters, social through cover for statutory classes, like workers’ compensation, and governance through D&O and other financial lines.”
Mr Lacey says the difference now is that ESG is being measured and the EU taxonomy, a classification system established to assist organisations to assess economic activities’ environmental sustainability, is applied in addition to traditional underwriting methodologies.
Responding to Mr Jones’s call for greater certainty from underwriters, Mr Lacey says “constant dialog” between insurers, reinsurers, brokers and their clients is needed.
He says the requirement to measure ESG has opened potential new careers for actuaries who measure ESG and he predicts analytics around ESG frameworks will give all parties in insurance transactions greater certainty.
Mr Lacey says ESG improves the value proposition for insurers and reinsurers from traditional risk financing to public policy issues like implementing reconciliation action plans, training for diversity and inclusion, enhanced driver safety measures, and better decision making on infrastructure locations.
Mr Jones and Mr Lacey will be joined on the WICA 2023 ESG panel by Caitlin Carson, Victorian Practice Leader with insurance broker Marsh, and Ryan Thomas, Manager, Financial Institutions and D&O, with Berkshire Hathaway Specialty Insurance.
The session promises a robust discussion from broker, insurer, reinsurer and client perspectives on managing the commercial realities of ESG.
Registration is open for the World Insurance Congress with discounted early bird offers available until 30 June.
WICA 2023 chair and AILA’s immediate past president Angus Kench says the congress is a unique opportunity to draw international visitors from AIDA’s global chapters to Australia.
“Attendees will learn from Australian and international experts, network with likeminded professionals from around the world, and contribute to the congress’s objective of driving outcomes for the global insurance industry,” Mr Kench says.
The event starts with presentations from each of AIDA’s 13 working parties that closely examine specific insurance issues from global and regional perspectives.
Panelists and expert speakers will then present sessions on four key themes – climate, conflict, ESG, and innovation and careers.
The speaker program is continually updated as more global industry leaders commit to presenting at WICA 2023.
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