Insurers increasingly understand the role they must play in supporting the transition to a more sustainable world. They also face growing regulatory pressure to report their impacts on the environment and get a grip on their climate-related exposures, leading many to create dedicated sustainability teams and embed environmental, social and governance (ESG) considerations into their processes and strategies. 

With the gaze of regulators currently more focused on financial institutions, progress on these issues among brokers has arguably been slower – though the dial is beginning to turn. We caught up with Ben Howarth, Chief Sustainability Officer of the Association of Insurers, to explore the role brokers can play in driving change and how they can start bringing ESG into their business models.

The first challenge for brokers, he says, is to identify where to focus their efforts as the broad church of ESG can feel overwhelming. “Broking is a diverse sector incorporating specialists and generalists, each with different outlooks and priorities,” Howarth says. “However, ESG is an all-encompassing issue that affects every part of the industry and is on most people’s agenda.”

The ESG issues that matter most will vary from company to company, though Howarth pinpointed diversity, equity and inclusion (DEI) and charting a path to Net Zero in the fight against climate change as two areas most brokers can start to address. “As you embed those two issues, it becomes easier to start thinking about wider ESG issues,” he says.

With the industry facing an ongoing talent squeeze, making progress on DEI is an important step in attracting the next generation into insurance as well as bringing fresh perspectives which can help enhance business performance, Howarth argues. 

“If you want to recruit the best people, you’ve got to offer them an attractive place to work, which is what DEI is all about. Today’s bright graduates and school leavers also want to be part of industries forming solutions on climate change, and our industry is going to play a central role in that,” he adds. 

When it comes to Net Zero, the regulatory direction of travel is clear as the UK and many other jurisdictions usher in legislation to support the transition to a low carbon economy while scaling up investment in renewables, nuclear and hydrogen power, carbon capture solutions and other emerging clean technologies. 

“These all come with risks and that’s a huge opportunity for the insurance sector. Brokers and insurers can work together to find solutions,” Howarth says, reinforcing the fundamental threat climate change poses to insurance business models. “If we don’t get this right, it’s going to be increasingly difficult to insure some really important risks.”

“ESG isn’t a fluffy issue, it’s business-critical.”  

Sharing client ESG data

One of biggest challenges the insurance industry faces in the fight against climate change is improving the quality and consistency of data shared in the underwriting process, including emissions data and various other sustainability metrics.

“For brokers, this means thinking about how they can help insurers capture relevant information, the kinds of questions they should be asking clients and how they represent them to insurers,” Howarth explains. 

Transition plans may be a good place to start. “Insurers are going to be obliged to publish their own transition plans, which means they’re going to have to understand those of brokers and their clients,” he says. 

A transition plan outlines the actions a company intends to take to pivot its business activities and operating model to align with climate-related ambitions such as the Paris Agreement, which aims to limit global warming to well below 2°C above pre-industrial levels, or preferably to 1.5°C. Disclosing these plans is set to become mandatory in the UK is likely to feature in future insurance regulation, Howarth says. 

“Transition plans are a useful structure to think about business and strategic objectives, including identifying which ESG issues are most relevant to you,

which aren’t and what data you need to start capturing,” he says. 

“You’re not going to have perfect data on day one, so the best thing clients and brokers can do is be transparent about what they know and don’t know – because that’s really helpful information for insurers and it’s a perfect opportunity to work collaboratively to get things right.” 

Howarth recognises this will take time and is an evolving process. “Right now, brokers and underwriters should focus on capturing the ESG data that really influences decision-making rather than trying to gather as much data as possible now and working out how to use it later,” he says. 

“If we can really think about what questions we’re trying to answer with this data it will make it easier to sell the additional data collection work to everybody,” he adds. “Capturing imperfect data, making sense of it and driving consistency is hard work. But hopefully people see it as an investment that will bear fruit over time.”

Educating retail customers

While the role brokers can play in driving sustainability in the commercial insurance space is clear, this is probably less true in personal lines. According to Howarth, the biggest influence brokers can have is by educating policyholders.  

“Most of the public are fairly sold on the idea we should be doing more about climate change and trying to live more sustainably, but they don’t necessarily know what they have to do – so insurers and brokers should work together to help people understand the actions and decisions that they can take to have a bigger impact.”

“Insurers and brokers should work together to help people understand the actions and decisions they can take.”

This could include, for example, advising consumers on how to adapt their properties to protect against flooding or extreme temperatures, which will help build resilience against climate change. “Equipping people with this kind of knowledge improves them as risks, which ultimately benefits insurers’ balance sheets,” Howarth says. 

The claims process also presents a huge opportunity for insurers to encourage policyholders to make more sustainable decisions, including improving energy efficiency when repairing properties, choosing green parts in motor repairs and adopting a ‘repair rather than replace’ approach wherever possible. 

“The real reason for brokers and insurers to implement sustainability is because of the scale of the challenge and the scale of the risk,” Howarth adds. “In insurance, risks and challenges are opportunities for you to help people solve them. It’s such a big challenge, but at the same time, it can really help people understand the value of insurance and get people back engaged with what our sector can do.”