Ten Sustainability Principles for Global Insurance Regulators

• Regulators should require insurers to account for environmental, social and governance (ESG) issues as a part of their strategies
• Regulators should introduces disclosure obligations around how insurers integrate environmental, social and governance factors, including climate risk, into their risk processes
• Regulators should incorporate climate-related risk in stress-testing
• Regulators should promote sustainable investment management practices
• Regulators should encourage the development of ESG-related insurance products
• Regulators should promote ESG educational programs
• Regulators should take part in international multi-stakeholder consultations (e.g. private sector, civil society) around ESG risks
• Regulators should consult with insurance companies on policies to promote industry sustainability
• Regulators should share the results of public consultations and developed policy recommendations
• Regulators should implement initiatives or policy recommendations generated through public consultations

The insurance industry and its regulators around the world are facing a dual risk. On the one hand, their balance sheets are exposed to direct losses from an increasingly turbulent world roiled by climate change. On the other, their balance sheets are proving increasingly difficult to shield from these long-term effects through asset-liability management (ALM).

The only way for insurers to find equilibrium is to broaden their embrace of environmental, social and governance (ESG) priorities in all facets of their operation. Highlighting best demonstrated practices among insurance regulators on promoting ESG factors for industry participants is a pathway toward finding better balance in an industry so essential to global resilience.

In 2017, there were USD $144 billion in insured losses. If the industry is to endure, adoption of ESG standards is both necessary and urgent—not only as a regulatory priority, but as the industry’s modus vivendi. Encouraging insurers to invest in ESG, promote sustainable products, and incentivize customers to follow suit will not only mitigate their direct risks, but also improve industry resilience. The best regulatory practitioners not only encourage ESG investments, they urge insurance company portfolios to divest from sectors which contribute to climate change.

Research shows that a 1 percent increase in insurance penetration results in a 22 percent decrease in the tax-payer burden of economic losses following a natural disaster or claim.¹ Nowhere is this protection gap as insidious as with climate risks, where insurers are not only stressing their actuarial models, they are stretching the scope and responsiveness of their coverage.

Against this backdrop, with long-tailed liabilities and short investment horizons on a collision course, regulators have an outsized role to play in encouraging broad sustainability within the insurance industry. California, no stranger to climate change risks, has an unsurprisingly sophisticated insurance regulator when it comes promoting ESG standards. The California Department of Insurance (CDI), is not only encouraging industry participants to measurably improve their ESG posture, including the encouragement of transparent risk reporting and divestiture activities, they are contributing to a community of peers around the world.

The Global Insurance Regulators Sustainability Index aims to highlight peer regulators around the world, calling out leading practices and aspirational policies that show sustainability and ESG have reached a place of permanence in the critical insurance sector.

It is our hope that this index and the ensuing work and conversations engendered by it will improve ESG adoption, spread leading regulatory and supervisory practices, and broaden the number of regulators’ that can appear in future rankings.

Dr. Tomicah Tillemann, Chairman, Responsible Asset Allocator Initiative

Dante Disparte, Senior Fellow, Responsible Asset Allocator Initiative