Launched earlier this year, the Poseidon Principles for Marine Insurance have heralded a significant step forward in creating a new global framework for responsible marine insurance to reduce shipping’s greenhouse gas emissions. Global strategic initiatives such as these put the topic of ESG (Environmental, Social and corporate Governance) further into the spotlight of the insurance industry, but navigating this nebulous landscape can be challenging. So, what role can insurtech play for insurers as ESG components become more and more relevant for underwriting?
The primary role of insurtech is to use digital technology to deliver savings and efficiencies from the current insurance business model. More specifically, insurtech focuses on:
- Aggregating huge amounts of data.
- Cleaning, processing and creating ‘analytics ready’ data assets.
- Creating complex models to ultimately increase underwriting profitability or portfolio performance.
If we take a closer look at ESG, we recognise that there is a significant synergy with the insurtech industry. The fundamentals of assessing ESG compliance are centered around processing, analysing and disseminating data to draw meaningful conclusions to assess and price a corporate insured party's environmental and social risks. This is a capability firmly within an insurtech’s wheelhouse.
ESG data – current challenges and the future
Insurers must get a holistic view of what ESG means for the insurance industry, how we want to measure it and what underwriting relevance it will have. Still, it is important to recognise some of the challenges around ESG data as it is not possible to measure everything – the data is simply not yet available to measure and qualify all aspects of ESG. To better assess the ESG underwriting risk, the industry needs to strive for increased standardisation in data reporting and increase information transparency across the sector. Continuing regulatory pressure will accelerate this process.
Key bodies such as the IMO have made good progress in measuring and evaluating emissions data, which led to the creation of frameworks such as the Poseidon Principles. Greater industry collaboration and standardisation will ultimately allow similar frameworks to assess the full ESG spectrum, enabling the insurance industry to drive holistic assessment and sustainable industry change.