December 2, 2020 by Jason Contant
Investors are increasingly asking insurers about environmental, social and corporate governance (ESG) practices and how they are being managed, Intact Financial Corporation’s senior vice president and chief financial officer, Louis Marcotte, said recently.
“In some cases, when we meet investors, they actually have an ESG expert in the meeting asking specific questions — and some tougher than others,” Marcotte said last week during the Canadian Insurance Accountants Association’s CFO panel discussion, presented by PwC. “And recently, with our proposed acquisition of RSA, some investors were asking what were the ESG considerations that we took into account while looking at the acquisition.
“So, it’s a live topic and I think because of that, it will drive some of the reporting that happens in the future.”
The panel discussed a variety of topics, including ESG, cyber, industry trends, IFRS 17, and the impact of COVID-19 on the industry. Regarding ESG, Marcotte said it’s evident ESG is gaining momentum, whether through internal or external conversations.
“We actually believe that the expectations of businesses have quite changed, in fact,” Marcotte said. “Today, we’re expected to be not only influencers of change, but rather forces of sustainable change. It’s putting the bar way higher than where it was before, and [this is] largely driven by the expectations of Millennials.”
Marcotte said Intact has been ranked by organizations that provide ESG ratings to investors. “We all know that what gets measured gets acted upon,” he said. “We see the need for change; in that respect, we really ramped up our ESG reporting.”
Another panellist said it’s even possible that “green insurance” will become mandated in North America or other parts of the world. Craig Pinnock, CFO at Northbridge Financial Corporation, cited China as a place where it’s mandated that all organizations to have a “green insurance” policy, which, he added, is effectively an environmental pollution policy.
“So, the environmental pollution policy being mandated as a cover — much like auto is here in Ontario — means you are going to have an insurance industry that is will have to figure out how to rate and assess and price the cost of insurance for the industry,” Pinnock said. “As you can imagine, the more likely or consistently you have contributed to pollution, the higher the charge is going to be.
“If it costs you a lot more money to do something because you have to buy this insurance, you will look for ways to manage and mitigate it.”
In the Chinese context, the insurance industry is front-and-centre in “helping push forward the development, expectations, and the improvements or betterments from an environmental perspective through a charge that the industry has been very good at being able to provide,” Pinnock said. This means charging more for the higher amount of risk that they carry.
“I can see that coming to North America or other parts of the world at some point in time if it’s mandated [in China],” Pinnock said, adding that the effectiveness of green insurance remains to be seen.
Some insurers and reinsurers have also committing themselves to green initiatives. Gareth Hill, vice president and CFO of Munich Re Canada, noted the reinsurer has joined the Net-Zero Asset Owner Alliance.
“We’ve committed ourselves as a group that by 2050 all of our investments will be in companies that, when you add up everything, has net-zero from an emissions perspective,” Hill said. “It’s a rather ambitious goal, but it’s something that the group as a whole is committed to.”
Marcotte said there is a need for change in improving ESG practices. “I think some of the initiatives you are seeing at Munich Re are driven by this notion of building sustainable change.”
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