U.S. Firms are Underperforming on ESG Issues, Says AM Best
AM Best says that American companies and re/insurers lag behind the rest of the world on environmental, social, and governance (ESG) issues.
The rating agency noted, however, that the United States is rapidly catching up on ESG problems, particularly with the election of President Biden and the following decision to rejoin the Paris Accords.
Daniel Ryan, senior director of AM Best, stated at the VCIA conference in Burlington, Vermont, that companies in the United States must be open-minded regarding ESG problems. He noted that while many of these features are not currently regulated, they may be in the future and that US companies must be prepared.
“At the end of the day,” Ryan said, “ESG is an element that all of us are going to have to embrace, understand, and move along with in the market. ESG has so many tentacles that could potentially be attached to things that, if you’re not paying attention to them, could be detrimental in the years ahead.”
According to Ryan, there have already been instances of captives assisting their parent firms with ESG issues.
He said there are currently numerous captives offering solutions to help organisations manage risk or exposure to risk; wildfire is a classic example.
“We’ve seen several captives that have already been called upon to step up after some of the events in California to fill a need in the programme where there was some capacity that needed to be filled, so they played a very important role,” said Ryan.
The same is true for cyber, he said, explaining that cyber threats and ransomware increased during the COVID-19 pandemic, which caused some cyber insurers to back away from some risks and let captive insurers fill the void.
Ryan said that these ESG factors could also be taken into account by commercial insurers when making decisions. "Limited availability and cost could open up new opportunities for captives, especially those in the energy sector, which could be asked to take on some of this reduced capacity on pricing issues because of their portfolios."
Ryan also concluded that reinsurers might want to make sure that a captive's ESG issues were the same as their own, especially since most reinsurers are publicly traded and have to follow and report on ESG guidelines.
Source: Captive International
