Higher ESG ratings lead to better underwriting performance in insurance industry according to a new joint study published by insurance broker Howden and specialty insurance and (re)insurance business Fidelis.
A joint media release by the two organizations said the study includes loss ratios across 30,000 policies from Howden and Fidelis’ datasets comprising a premium value of around $9bn, against third party ESG ratings. It is perhaps the largest study that has been conducted to date to establish the link between these factors.
The analysis reveals that environmental ratings have the strongest correlation with loss ratios. However, there is variation by line of business and industry. Of the multiple lines of business studied, property insurance shows the strongest correlation between better ESG scores and better loss experience.
The study reflects Howden and Fidelis’ mutual desire to support the transition to a more sustainable future. Howden and Fidelis are working to further examine the findings with a particular focus on exploring underlying causation, in order to enhance understanding and usability.
Howden Group CEO David Howden said, “It is great to see the proactive approach that Fidelis and other insurers are taking to better understand the link between ESG profiles and risk. The data backs up our long-held belief that clients should be rewarded for high ESG credentials.
“This is an obvious way in which the insurance industry can support the transition. I hope to see, in the near future, ESG factors built in to underwriting processes and pricing decisions to a much greater degree.”