[Becoming an Insurance Insider] How Will 'ESG' Affect My Insurance?

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[Asia Economy Reporter Oh Hyung-gil] As ESG (Environmental, Social, and Governance) management has emerged as a key issue in the insurance industry, it is pointed out that insurance subscribers cannot be free from the impact of ESG.

ESG risks not only affect the sales performance of insurance companies but inevitably influence insurance loss ratios and premiums.

For example, if abnormal temperature phenomena worsen people's health conditions, insurance payouts may increase, and ESG can also cause a decline in the value of investment assets.

In a recent report titled "ESG and the Insurance Industry" released by the Korea Insurance Research Institute, ESG is described as a non-financial factor affecting corporate value, stakeholder value, and sustainable development of society.

The report stated, "ESG risks can directly and indirectly increase the likelihood of insurance incidents, thereby affecting insurance business performance," and "Abnormal temperature phenomena can impact people's health, leading to increased health insurance payouts."

It added, "If governance is poorly established and executives' wrongful acts cause damage to shareholders or third parties, executive liability insurance payouts may increase."

Investment assets are also exposed to ESG risks. The level and performance of ESG risk management affect the investment business performance of insurance companies. The investment performance of an insurance company is determined by the ESG risk management level and performance of the companies or industries in which it invests.

Specifically, from an environmental perspective, failure to respond to the climate crisis can lead to natural disasters, ecosystem changes, and negative impacts on individuals' health and income. This can increase losses in disaster, liability, and health insurance.

From a social perspective, if social risks such as occupational safety and health, customer information protection, and supply chain management are not controlled, losses may occur in workers' compensation insurance, liability insurance, cyber insurance, and others.

From a governance perspective, if executives' wrongful acts or poor decision-making cause serious economic losses to shareholders or third parties, the likelihood of increased executive liability insurance payouts is high.

Accordingly, insurance companies must encourage policyholders to reduce ESG risks and, in the long term, address the challenge of providing products and services that fill coverage gaps caused by increased ESG risks.

Experts commonly agree that insurance companies need to inspect and manage ESG risks while simultaneously establishing clear strategies.

An industry insider explained, "There is a need to offer insurance products that cover risks related to carbon-neutral implementation projects such as renewable energy businesses, or to develop insurance that protects low-income groups in cooperation with local governments from a social perspective," adding, "Liability insurance can also induce improvements in corporate governance and errors during business management."

This content was produced with the assistance of AI translation services.