ESG Insurance Underwriting Solution

Moody’s ESG Insurance Underwriting solution integrates indicators and scores to help Commercial P&C insurers operationalize environmental, social, and governance (ESG) risk assessment in their insurance underwriting workflows.

Our integrated solution for portfolio managers and underwriters combines public and private company data, a double materiality assessment framework, and new analytics. These help insurers identify correlations between ESG factors and financial-risk metrics, such as claims frequency and loss ratios. Enabling insurers to identify the accounts that contribute to portfolio-level ESG performance pre- and post-bind to help gain a competitive advantage.

ESG creates both risk and opportunities for P&C insurers to grow their business, that provides another lens through which to view risk selection and appetite. The door is open for P&C insurers to build competitive advantage by imposing their own view of ESG risks, redefining risk appetites, and incorporating ESG into the decision-making process. Insurers can also critically engage with their insured entities, especially those with emission-intensive activities, on their decarbonization strategies and net-zero transmission paths.

Assess the impact of your insured entity on the planet and society

Double materiality is the cornerstone of our approach. By understanding how risks in the global economy are interconnected, our definition of double materiality includes two types of exposure.

Business exposure: the extent to which ESG factors have or are likely to have direct or indirect impacts on a business’ strategic assets, activities or financial performance.
Stakeholder exposure: the positive or negative impacts that a business has or is likely to have on its stakeholders resulting from its operations, products, services and value chain.

Materiality defines why and how certain issues are important for an insurer. Double materiality extends this concept and considers the impact on environmental and social stakeholders.

Ensure no gaps in your portfolio

Moody’s has been a pioneer of ESG analysis for more than three decades. Our ESG company scores consider 273 data points and include monitoring and alerts for ESG risk events. Our database of 450 million company records, coupled with our ESG score predictor algorithms, enables us to provide ESG scores and sub-indicators for more than 290 million public and private companies, helping insurers assess their often-diverse portfolios.

Featured Experts

Hasan Cerhozi

Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.

Paul McCarney

Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers

Salman Siddiqui

ESG and climate expert for P&C insurance; IFRS 17 specialist and chartered accountant; extensive experience in both life and non-life insurance, with focus on capital management, financial performance, and financial reporting.

FAQ ESG Underwriting

Moody’s ESG Insurance Underwriting Solution helps P&C insurers operationalize environmental, social, and governance (ESG) risk assessment in their insurance underwriting workflows.

(Re)insurers use the insured’s environmental, social, and governance (ESG) performance scores in their underwriting and portfolio management decision-making process. It acts as an extra datapoint in the pre-bind risk selection based on their own view of ESG risk. In addition, post-bind, (re)insurers can engage with their insureds , explain their approach to ESG and obtain information on transition plans.

In a rapidly changing business environment, P&C firms face increasingly complex and interconnected risks, including those arising from ESG factors. (Re)insurers effectively demonstrate how they are identifying, managing, and mitigating these risks. As well as demonstrate their net zero commitments, especially where reputational risks is high.

In addition, new avenues of capital raising can be explored where ESG transparency is needed.

With growing societal, governmental, and consumer attention, P&C insurers are just beginning to understand how ESG affects everyday business operations. P&C insurers can gain a competitive advantage by creating their own view of ESG risks.

Gaining a perspective on the drivers of ESG risk in their portfolios, redefine risk appetites, and incorporate ESG factors into underwriting and pricing decision-making processes. By reinforcing their expertise in ESG underwriting, (re)insurers can more meaningfully engage with their insureds especially those with emission-intensive activities, on their decarbonization strategies and net-zero transmission paths.

The three pillars of an ESG insurance underwriting framework that combines public and private company data, a risk assessment, and analytics.
- Data management & validation: Corporate data on both public and private entities. Necessary to allowing insurers to identify the correct insured entity unlocking the main information and datapoints.
- ESG risk assessment: Capture additional ESG related information to make an assessment of the ESG risk. Requires insurers to redefine their underwriting risk appetites. Assessment typically combines a multi step approach using ESG scores, ESG data, revenue data and overall assessment against defined criteria and categories.
- Analytics: Portfolio composition and point of underwriting risk analytics derived from the risk assessment help insurers identify the accounts that contribute to portfolio-level ESG performance pre- and post-bind.

Common challenges include, linking the insured entity to an ESG score and providing ESG scores for private entities.

Insurers are good at knowing what is insured, but there can be data challenges tracking who is ultimately insured. This usually arises from a lack of information provided at pre-bind, especially where data is provided via binders (a written copy of the binding agreement between the insurer and the insured). This then creates complications when trying to tie the ultimate insured to an ESG score, especially where some companies may contain similar names to others or data input errors.

For ESG scores, most insured portfolios are composed of public and private entities. Private entities are much less likely to participate in ESG reporting compared to a major corporate, such as a Fortune 500 or FTSE 100 company.

The solution to both issues is to source ESG data from vendors who can also provide a name matching service to ensure the correct ESG score is applied to the relevant insured entity.

Approaches differ by insurer and are aligned to their own policies, procedures and processes. Insurers need sufficient data points for each prospective insured to support high quality ESG Scores across the portfolio of insureds, particularly for unlisted companies.

The right data on private and public companies is essential. For example, underwriting process requires data to identify the correct insured entity, unlocking the appropriate ESG score and data points to build an understanding of the ESG impact on the portfolio.

Information then flows to the assessment framework integrating ESG scores into underwriting selection decisions. Insurers can also add their own view of ESG risk and specific customer weighting for E,S, and G factors. Finally, all the data and decision made feed reporting on ESG performance to internal and external stakeholders.

ESG solutions for insurance underwriting vary from just raw ESG data, the application of solutions from the investment side, to integrated ESG underwriting solutions. The ESG underwriting solutions covering data, analytics and technology tailored specifically to address the challenges of P&C insurers. Progress that has been made includes:
- The development of commercial ESG data solutions such as Moody’s collaboration with Chaucer to create the ESG Insurance Underwriting Solution.
- Collaborative efforts to standardize the data collected from policyholders. Each organization then decides how to use the data.
- Sector-specific emissions data initiatives such as the Poseidon Principles for Marine Insurance.

ESG underwriting helps to mitigate risk by providing investors with an unbiased view of the underwriting portfolio from an ESG perspective.

As P&C (re)insurers continue their ESG underwriting initiatives, the door is open to build competitive advantage and identify new business opportunities. By imposing their own view of ESG underwriting risks, redefining risk appetites, incorporating it into the decision-making process, and critically engaging with insureds.