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The market recognises the need for standardisation

Guy Dormer
Head of Underwriting Strategy

Insurers in the Lloyd’s market face some unique challenges when it comes to ESG data. Much of the business in the market is syndicated, which puts underwriters one step away from the client and limits their ability to demand information and exert influence.

ESG data is improving and new data sources are emerging all the time. However, the landscape is still extremely fragmented, inconsistent and incomplete. ESG data solutions have often been developed with different objectives in mind, and insurers must work out which data is most appropriate and adapt it to their specific requirements.

The size and complexity of insureds also varies significantly across the market, and data is not easy to obtain on smaller private companies. Some rating agencies have developed solutions to improve coverage of SMEs, but their models still rely heavily on assumptions and proxies, so it’s important to recognise the limitations of the data we are working with.

Insureds also want to know what they get in return for providing ESG information. There is, after all, still very little research on the relationship between an organisation’s ESG score and its loss performance. This means there is often a gap between what information an insurer wants, what a client can provide and what brokers are willing to push for.

The market recognises we need to move towards a more standardised approach. That in itself is progress. Lloyd’s is particularly focused on driving consistency around emissions data and climate impact and Lloyd’s carriers are collaborating to develop question sets around these issues – though this isn’t as easy as it sounds.

There is some coalescence at a baseline level on emissions data following the launch of PCAF and NZIA’s Global GHG Accounting and Reporting Standard for Insurance-Associated Emissions. However, even if we get to a point of consistency in this one focus area, we still face a huge challenge to improve data and incentivise clients in other areas of ESG including transition plans and social and governance factors.

The big brokers, quite understandably, see an opportunity to develop solutions to meet the needs of clients around ESG advice and measurement, and are naturally pushing clients towards their own frameworks. However, competition between brokers and various other agencies with ESG solutions may create a barrier to collaboration and universality.

Going forward, open engagement between insurers and brokers is essential. 


ESG Data for Underwriting

We have been permitted to re-produce Guy Dormer's article here, which first featured in the report 'ESG data for Underwriting' (Better Insurance Network & Oxbow Partners), published 23 January 2023.

Download 'ESG Data for Underwriting' here