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Buyers will start vetting insurers on ESG strategy, says WTW exec

Corporate insurance buyers will start selecting insurers based at least in part on their environmental, social and governance credentials, according to Clyde Bernstein, head of broking, Great Britain, at global brokerage Willis Towers Watson PLC.

Few buyers are approaching brokers and demanding that their risks be placed with insurers whose corporate values match their own, but that stands to change over time, Bernstein said in an interview at Airmic Conference 2022. Bernstein said companies cannot afford to be disingenuous about their corporate purposes, which will push them to align their business with insurers who have the same values.

'Massive' growth potential

In particular, the shift to cleaner energy sources presents a "massive growth opportunity" for insurers as traditional energy companies look to make the transition and new technology springs up to complete the process, according to Bernstein.

As part of the push for net-zero greenhouse gas emissions by 2050, global corporations are monitoring their own emissions, emissions caused by their energy use and those from their supply chains, including insurance procurement. Those three scopes are defined by the Greenhouse Gas Protocol, a body that sets emissions measuring standards

Corporations are facing the same pressures as insurers from investors and other stakeholders to raise their ESG game, Bernstein said.

Insurers have been pulling out of underwriting fossil fuel risks — particularly coal — but many have also been insistent on continuing to insure traditional energy companies with credible transition plans, which Bernstein said is "a massive growth play." Getting a share of the $125 trillion investment that the United Nations Framework Convention on Climate Change's Race to Zero campaign estimates will be needed by 2050 to shift to net-zero emissions "is enormous for this industry," he said.

Supporting the move to greener energy will help insurers forge longer-term relationships with buyers, according to Bernstein. Today, there is little loyalty between the two sides as buyers change insurers to obtain cheaper prices for coverage in soft markets and insurers raise prices in hard markets regardless of the relationships they have with buyers.

"If the insurance market can get their head around shifting from this annual venture to one where they become a partner of the transition, a force for good, [they] might find that [they have] broken that dynamic of continuity," Bernstein said.

Longer relationships will also give insurers greater ability to underwrite novel risks arising from the energy transition. Deeper relationships could also create the potential for insurers to cross-sell products, which has proven elusive in the past because insurers and brokers tend to separate business lines in their organizations.

"At the moment it's very disjointed," Bernstein said.