Column: Horner On ESG Data, Insurance & More
[Column written by Patrice Horner]
Commercial Risk sessions during the London Climate Week delved deeper into practicalities. The type of underwriting will determine the type of data required for decision-making. Clients cannot be requested to provide 50 data points on a long questionnaire in each instance. One approach is using the Key Performance Indicators [KPIs] as a backdrop. An Electronic Data Interchange [EDI] can build a common language. An industry shared database of consistent and quality data will result in better underwriting decisions. ESG data is merging into practice, so its reliability is important. However, ESG might not be a dominant point of discussion for the client, except in Directors and Officers [D&O] Insurance where otherwise they can be personally liable for errors in corporate oversight, or in Professional and Indemnity Insurance, and in construction. SCOL has issued product in this area.
In modelling and assessing climate risk, data is used to build out a quantitative model and event costs for a variety of scenarios. The scenarios are prioritized with qualitative information. There are consultants in the market to assist in this exercise. The Information Systems Audit and Control Association [ISACA] website features a summary of Risk Assessment and Analysis Methods by author Volkan Evrin. A risk assessment determines the likelihood, consequences, and tolerances of possible incidents. The Risk and Insurance Management Society issues the RIMS Benchmark Survey™ that is a leading source of market intelligence for risk management decisions and benchmark industry data for over 5,000 insurance programs from 570 organizations, according to the RIMS website. This data can be used to digitalize for Climate Risk adaptations. Building models for climate risk is ‘the next big thing’, according to panelists in ESG Data for Insurers hosted by Commercial Risk as the London Climate Week.
‘It is the right thing to do’, according to Steve Fowler as he encouraged the concept of carbon neutrality. Although the funds dedicated toward climate adaption falls short. ESG is a risk topic. The Association of French Risk Managers [AMRAE] Michael Josser points out that it is ‘time to take action’. He explained that the highest temperature of 51 C was reached in Saudi Arabia, that there have been 11 named storms so far from Sep-now, and there were $280 billion economic loss from catastrophes during the period. We are in for a rough ride for climate and economically over the next decade, if not sooner. Many insurers are preparing for the challenge. Andrew Forsyth is heading Zurich Resilience Solutions [ZRS], a new unit that provides data-driven insights and solutions to help customers manage and mitigate risk. The ZRS methodology is Hazard + Exposures + Controls = Risks.
The governance piece of ESG is a central part of the risk oversight and management. There are second orders of impact that result from the hazards, such how the Texas power outage from freezes impacted Mexico or how water shortages in China stopped power generation for 2-3 weeks. The Boards of Directors need to be aware of the bigger picture and be fully engaged. Boards should examine resilience in operations, supply chains, financially, and strategically. The AMRAE is focusing on the sustainability function in finance, with 20 captives established in the country.
In closing, advanced finance is pivotal in coming to grips with the potential catastrophes the world is facing. New State actors need to assist companies in initial capital. Fowler commented that the Internation Standards Organization ISO- 3100 on Threats and Opportunities is a good reference point to start business Impact Analysis. Brokers can play a big role in assisting clients prepare for fruitful discussions with the insurers. Josser stressed the need for partnerships in insurance to build reliable data and scenarios for proper pricing. He asked that the insurance companies share the expertise of their engineers in modeling climate risk, who have the lead on understanding the complexities of the climate and the risk exposures.
- Patrice Horner, MBA, EFA
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Category: All, Environment
