Do we have enough ¨S¨ in ESG?

Thursday, October 29, 2020

In the second of four articles on the role of inclusive insurance in the UN Sustainable Development Goals (SDGs) and Environmental, Social and Governance (ESG) criteria, we focus on the current status of what insurers have accomplished to date in putting the ’S’ into ESG and what opportunities still lie ahead.

ESG requirements have been gaining increasing attention from regulators and investors around the world. Today, two thirds of the institutional investors believe there is a positive correlation between a company’s financial performance and ESG disclosures, according to the latest Edelman Trust Barometer. Furthermore, the assets flowing into ESG funds are increasing rapidly. For instance, Morningstar data covering the UK, shows that during the first 10 months of 2019, £4.4bn was invested in ESG funds. This is an increase of 53% from the previous year. Over the past five years, asset flows have increased by nearly 2500% [i]

This is why providing microinsurance for underserved markets makes sense for insurance companies. This activity can significantly enhance or be an integral part in the development of their ESG corporate strategy.  Furthermore, with encouragement from MFIs, some insurers see the large number of low-income persons in developing countries as a new market opportunity. In his book Fortune at the Bottom of the Pyramid, C.K. Prahalad defines the four-billion person market of possible low-income consumers who can be served by providers of products and services, if these providers create innovative new business models.[ii]

Despite these opportunities for insurers to enhance or develop the social part of their corporate ESG and create a new market opportunity, there is still a gap between the market need and the microinsurance provided. In order to better understand how the insurance companies and brokers are currently dealing with the social component of their sustainability practices, students at the Katie School of Insurance and Risk Management, Illinois State University have investigated these gaps. The research shows that while there has been progress made by some of the larger insurance companies, there is still much to be done to help bring much-needed microinsurance products to the underserved market in developing countries.

Investigating the Social Component of Insurers' Sustainability Practices study was presented in a MiN webinar moderated by Katie School Executive Director Jim Jones, and featuring contributions from students Sara Haouassia, Brendan Leibforth, Taylor Copas and Harrison Porter. They used a sample of 117 insurers and 19 brokerage firms that are members of  the Microinsurance Network, the Insurance Development Forum (IDF), signatories of the UN Environment Programme Finance Initiative Principles for Sustainable Insurance (UNEP-PSI), and the world’s top 25 insurers by assets and top 19 brokers by revenues. The team analysed the social component of sustainability practices in relation to inclusive insurance, emerging customers, diversity, women’s empowerment, and risk management education​.

Insurers were rated ‘advanced’, ‘beginner’ or ‘underdeveloped’ according to the range of microinsurance products they offer. Just over a quarter (26 percent) were advanced, meaning they offer microinsurance products in several markets. Advanced insurers tend to be based in Europe or the Asia-Pacific region. 15 percent were beginners, in the early stages of developing their microinsurance products, while ten percent were underdeveloped, with no microinsurance products yet developed. However, nearly half - 48 percent - showed a lack of transparency, with no mention of microinsurance on their websites, in corporate social responsibility (CSR) reports or media coverage.

A significant finding was that Microinsurance Network members who are also, IDF members are offering microinsurance more than non-IDF members. The companies which are members of both organisations are offering 67% of the advanced-stage microinsurance products. The student team also studied the activities of the PSI signatory companies.  They found that the top 25 PSI signatory companies with the highest assets (or premiums) are more likely to offer microinsurance products than non-PSI signatories in the same group. The conclusion is that companies that are members of these top 25 companies and PSI signatories are more apt to offer microinsurance. However, for the PSI signatory group, they also have to be in the top 25 with the highest assets (or premiums) group for this to hold true.

The study included the analysis of the PSI signatory companies’ activities in diversity and inclusion. Of the 74 PSI signatory companies that were studied, 67% reported diversity and inclusion covering engagement and leadership with a specified type of activity. Race, gender, age, religion, LGBTQ, and ethnicity were among the twelve specified types studied in the diversity and inclusion analysis.

Across the board, reporting was less than robust among the insurance companies included in the study, except for those who were PSI insurers and also in the top 25 companies with the highest assets (or premiums). This group had extensive reporting across the board. As was pointed out in the webinar by Taylor Copas, “Larger companies have better access to research and resources. They have a large customer base that they need to satisfy and might be expected to be transparent in their public reporting, whereas smaller firms are more focused on their person-to-person interaction.”

Those who were PSI insurers and in the top 25 companies with the highest assets (or premiums) were also found to have the most extensive reporting in sustainable community initiatives like General Education Programs, Micro Financing Initiatives, Women and Youth Empowerment Programmes. One group that did not strive for sustainable community initiatives were the Top 20 Brokers of 2018, who had below 50% of them reporting five sixths of the criteria analysed in this section of the study.

Jim Jones highlighted in the webinar, “If you think that microinsurance is underrepresented, it could very well be that it’s just not reported. If companies aren’t putting their information in their reports or websites, then it doesn’t show up in the study. So, there might be an opportunity for better communication.”

As mentioned, ESG reporting can be expensive and time-consuming. As a result, only the larger insurers seem to be doing this well, according to the study. However, demonstrating ESG as part of a corporate strategy can create value for your organisation. It can be as easy as starting with an activity that the company is already integrating into their corporate strategy, such as diversity and inclusion.

According to McKinsey[iii], supporting the social part of ESG can benefit a company by increasing employee motivation and productivity. Furthermore, employee satisfaction is positively correlated with shareholder returns. It can also affect customer engagement and finally consumer behaviour which affects the bottom line. However, if this work is not known by the employees or externally by the customers, the end-result of shareholder value will not be known or understood. So, the extra effort and/or cost of reporting may be negligible when considering the crucial effect it will have on the long-term growth, that is dependent upon ESG principles being incorporated in companies’ strategies due to market demand.

[i] Good Corporation, Is ESG a ¨nice to have¨ or an integral part of corporate strategy,, Accessed on October 26, 2020.

[ii] Springer Link, Insuring the Low-Income Market: Challenges and Solutions for Commercial Insurers,, Accessed on October 26, 2020.