The insurance industry's report card - could and should do better!

Cyber, ESG, policy walking and stink bombs all grabbed Alex Wise’s interest in this week’s review of the latest insurance news.

Some of this week’s insurance news had a school report vibe to it. We had teachers in the shape of the Share Action, AM Best, Insurance Rebellion and the FCA, all telling us we need to concentrate, work harder and listen. In fact, a very similar narrative to my own school report card.

The Insurer and Business Insurance covered AM Best’s rather grim view on the prospects for the cyber insurance market. The once poster child of emerging risk is now facing growing exposures as scams, malware and ransomware attacks become more sophisticated and companies struggle to keep up with the pace and far-reaching implications of cyber risk. The answer to ensure a long-term future for cyber? A M Best says insurers must reassess their appetite, risk controls, modelling, stress testing and pricing so that’ll be pretty much everything then.

Insurers’ ESG chops came under scrutiny with Insurance Post’s coverage of the Insuring Disaster report by Share Action, a charity focused on driving responsible investment practices. The story’s headline pretty much said it all “Insurers are failing to tackle ESG issues”.

Share Action obtained responses and ranked 70 of the world’s largest insurance companies on factors including responsible investment governance, climate change, biodiversity and human rights. The result of the exercise is a ranking from AAA to E depending on their performance in those areas.  Only five European-based insurers achieved an A rank (non-secured AAA or AA) while nearly half of the rest ranked with an E (A letter that appeared in a few of my school progress reports so I feel their pain).

The charity’s opinion is that many of the largest insurers do not live up to their role as ‘risk experts’ and are failing to adequately address systemic risks such as climate change and biodiversity loss.

Interestingly, and perhaps pointing to one of the challenges for insurers in terms of the ESG agenda and their role in building societal resilience and mitigating the impact of risk, was that only a quarter of the insurers referred to the role of underwriting in their responses.

One aspect of the ranking was around the stance adopted by insurers to underwriting coal. The topic has attracted vocal criticism and direct action by protestors to pressure insurers to step away from specific coal and tar sands projects. Indeed, this week saw a group called Insurance Rebellion (A catchy name for my friends in the world of branding to ponder) which let off what was described as a ‘stink device’ outside of Lloyd’s of London, a move covered by several of the trade press including Intelligent Insurer and Insurance Insider.

Now from what I can remember of stink bombs in my youth, they weren't an effective tool at effecting lasting change, they certainly didn’t stop math lessons on a Thursday afternoon!  There's little doubt that attitudes in the industry are changing and action is being taken to address the vitally important issue of climate change.  Lloyd's, the target of the group's attention, has emphasised its commitment to changing and transitioning towards a more sustainable marketplace. These groups will no doubt continue to hold the industry to account if it turns out to be just words rather than deeds.

The final topic on the industry’s report card this week is the publication of the Financial Conduct Authority’s final policy statement on tackling pricing walking in the personal lines motor and home markets covered by Insurance Times (though strictly speaking the story appeared last Friday but hey it was the day before a public holiday weekend in the UK so I’m taking some licence here!)

The 200-page statement confirmed the new rules to be brought in from 1st January 2022 to ensure renewal customers are charged no higher a premium than new ones.

The downward trend in the pricing environment over the last few years has been in part a reaction to the impact of these pricing remedies. As we go through the rest of the year it will be interesting to see how personal lines insurers react and either start a land grab to secure more customers or adapt their appetites to capture business.

Either way, 200 pages is some homework!