P&C insurers, particularly those in the corporate P&C segment, are increasingly incorporating ESG and climate into their underwriting processes.  Assessing ESG-C risk pre-bind, and understanding the ESG-C footprint on their overall insurance portfolio.

The developments are relatively new and strategies have varied considerably between carriers. Some have focused purely on certain lines and sectors (for example, excluding new coal power plant developments), while others have looked to create balanced scorecards to measure ESG-C risks. The scorecards are then used to guide risk selection and pricing as well as providing mechanisms for referral to underwriting committees for risks that fall outside of ESG-C tolerances.


Thinking beyond downside risks

Green infrastructure and renewable energy projects which support the transition from a high carbon to low-carbon economy should present new risks and premium opportunities for P&C carriers. Insurers who are able to adapt their business models for these new risks are most likely to capture these growth opportunities. It requires data on transition risks for sectors and insurers, and then deploying capacity and expertise into those sectors that are likely to benefit from the transition to a low-carbon economy.

Typical Challenges are:

• Correctly identifying insureds. Gathering information about insured entities held on P&C insurers policy administration systems is often poor, making it difficult to obtain ESG scores on their portfolio
• Obtaining data on private entities. While an insurer’s investment portfolio is typically made up predominately of listed corporates and sovereigns, their underwriting portfolios are overwhelming composed of private firms. ESG data on private entities is limited.
• Re-thinking risk appetite. Taking a balanced approach that considers ESG-C risks holistically and does not have ‘red lines’. The approach should allow a continuation of coverage even for companies with poor ESG scores providing they have good transition plans in place.

Moody’s Analytics offers a range of P&C underwriting solutions. These include acting as a single source of public, private and sovereign ESG data, through to transition planning and engagement, enabling insurers to develop a proprietary risk profiling methodology based on their own view of risk. 

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