United States

Stakeholder activism, combined with regulator and investor pressures, are quickly transforming the ESG landscape. Increasingly, these constituents have come to expect a detailed roadmap aligned with voluntary reporting frameworks and disclosure of a business plan for how companies intend to deliver long-term financial performance through the transition to a net-zero emissions economy.

Growing Focus on Insurers

Several regulatory developments have helped underscore the growing need for insurers to have a clearly defined ESG strategy. In 2022, the National Association of Insurance Commissioners (NAIC) released an updated climate risk disclosure survey, the U.S. Securities and Exchange Commission (SEC) released its climate disclosure requirements proposal and the Federal Insurance Office (FIO) released initial climate-related priorities for comment.^{1, 2, 3} Increased focus on climate emphasizes the environmental component of ESG, yet insurers must also illustrate their ability to navigate a range of economic, financial, and regulatory components across a range of timelines. More than ever, ESG strategy can play a central role in a company's efforts to reduce risk and create sustainable value.

FTI Consulting experts provide a broad range of services bridging ESG and insurance excellence in a variety of areas including:

Asset Modeling and Tracking
As insurers seek to demonstrate financial resilience under a variety of possible future economic scenarios and comply with regulations, the relevance of climate-related risk is growing.⁴

The ability to track and report exposure to risk factors such as fossil fuel-intensive industries, greenhouse gas emissions, and other industry-specific factors is important to risk management and regulatory compliance. Increasingly, insurance providers and underwriters are expected to understand the climate-related risks implicit in their portfolios, which requires strong data management and the ability to leverage these data inputs to model risk.

Catastrophe Modeling
Catastrophe modeling can help to understand and manage the potential effects of climate change or other complex scenarios to inform strategic planning, risk management and underwriting activities.

Approach – FTI Consulting's experts can develop new catastrophe models or refine existing models, leveraging deep knowledge around the assumptions, underlying science, and loss drivers for specific events.

FTI Consulting's approach employs continuously improving statistical analysis and scientific data across four core modules:

Event module
Intensity module
Vulnerability module
Financial module

Outcome – FTI Consulting's experts can assist clients in understanding and quantifying catastrophe risk through useful metrics related to catastrophe risk such as:

Exceedance Probability (EP) curve
Probable Maximum Loss (PML)
Average Annual Loss (AAL)

TCFD Alignment
The outputs from our six-step process for helping companies implement and respond to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) are well-positioned to address many of the recent regulatory developments affecting insurers – which align closely with the TCFD requirements.⁵

FTI Consulting's TCFD process includes both internal and external components to educate members of your organization, leverage internal resources to identify the company's climate-related risks and opportunities, and report the financial implications of a range of climate scenarios, accompanied by the company's plans for oversight and risk management for long-term resilience:

Regulatory Overview and Education
Data Tracking and Improvement
Risk and Opportunity Identification
Quantitative Scenario Analysis
Governance Advisory
External Reporting

MSCI Scoring Improvement
MSCI ESG Ratings aim to measure a company's management of financially relevant ESG risks and opportunities. The ratings use ESG policies, programs, and performance across a list of ESG key issues to produce a rating ranging from AAA-C to help stakeholders understand a company's ESG risks and opportunities while allowing investors to integrate these factors into their portfolio construction and management process.⁶

As such, reporting and engagement around the MSCI key issues relevant to the insurance industry – which commonly include Carbon Emissions, Human Capital Development, Privacy & Data Security, among others – can result in a higher rating and with it, additional benefits.

FTI Consulting's team helps clients understand the MSCI ESG Rating process and engage the rating agency through in-depth analysis to understand rating improvement opportunities including: (i) methodology education, (ii) exhaustive identification and prioritization of improvement opportunities, (iii) in-depth peer disclosure research and benchmarking, and (iv) engagement with rating agencies for score improvement.

MSCI ESG indexes rely on ratings and rating trends (upgrade, downgrade, or no change to the rating) to establish index inclusion and weighting. MSCI's 1,500+ equity and fixed income ESG indexes are used by institutional investors for index-based investment products, risk and return analysis, compliance with ESG mandates, and to define an investment universe.⁷ A strong MSCI rating can result in access to expanded pools of capital and help to signal strong ESG performance to a range of stakeholders.⁸

Stakeholder Engagement and Communications
Successful ESG communications integrate key rating agencies, reporting frameworks, policies, controls and compliance procedures while fitting seamlessly into a company's larger strategy and messaging.

FTI Consulting's Strategic Communications team helps craft and communicate compelling and cohesive ESG messaging through sustainability reports, stakeholder content development, and stakeholder engagement to maximize the value of ESG communications across key audiences including customers, employees, investors, regulators and the media.

ESG and Insurance Excellence Core Service Offerings:

Discovery and Assessment

Peer, regulatory, ESG ecosystem landscape review and related education
Current state assessment
Internal stakeholder alignment on key program objectives and identification of most critical external stakeholders

Strategy Development

Materiality assessment
KPI identification, goal-setting
Long-term roadmap

Implementation

Programmatic investments
Creation of procedures, policies, oversight mechanisms
Adjusting accountability, lines of communication

Reporting and Engagement

Sustainability report and website development inclusive of relevant framework disclosures; e.g., Taskforce on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI)
Related messaging for proxy, annual report, investor relations materials
Direct engagement with rating agencies following disclosure

Measurement and Refinement

Periodically take pulse of key stakeholders on progress vs. peers; monitor peer landscape
Execute on critical roadmap items
Seek and review third party ratings; make targeted improvements to improve active and passive capital flows

It's time to act if you have yet to:

Assess your environmental data access and quality
Conduct qualitative climate scenario analysis
Set an emissions reduction or net-zero target
Calculate Scope 1-3 GHG emissions
Identify climate-related risks and opportunities and assign oversight
Prepare for response to TCFD and related financial reporting requirements

Our team's experience spans insurance excellence, sustainable finance and integrated sustainability, investor reporting and disclosure, stakeholder engagement and public affairs, and digital insights and analytics. The result is an integrated team of experts ready to meet the specific needs of unique projects across the industry.

Expected Benefits and Outcomes

Established metrics and programs
Mature ESG risk management
Increased transparency to stakeholders
Reduced risk of regulatory scrutiny
Potential higher ratings from rating agencies – S&P, Moody's, MSCI, Sustainalytics, etc.
Decreased risk
Increased access to capital

Footnotes

1 "Proposed Redesigned NAIC Climate Risk Disclosure Survey," National Association of Insurance Commissioners (last accessed on January 20, 2023), https://content.naic.org/

2 "SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors," U.S. Securities and Exchange Commission (March 21, 2022), https://www.sec.gov/news/press-release/2022-46

3 "Treasury's Federal Insurance Office Takes Important Step to Assess Climate-related Financial Risk – Seeks Comment on Proposed Data Call," U.S. Department of the Treasury (October 18, 2022), https://home.treasury.gov/news/press-releases/jy1030

4 "SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors," U.S. Securities and Exchange Commission (March 21, 2022), https://www.sec.gov/news/press-release/2022-46.

5 "Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures," Task Force on Climate-Related Financial Disclosures (June 2017), https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf.

6 "ESG Ratings: What is an MSCI ESG Rating?," MSCI Inc. (last accessed on January 20, 2023), https://www.msci.com/our-solutions/esg-investing/esg-ratings.

7 "ESG Indexes," MSCI, Inc. (last accessed on January 25,2023), https://www.msci.com/our-solutions/indexes/esg-indexes

8 "MSCI ESG Universal Indexes Methodology," MSCI, Inc. (last accessed on January 25, 2023), https://www.msci.com/eqb/methodology/meth_docs/MSCI_ESG_Universal_Indexes_Methodology_Dec2019.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ESG And Insurance Excellence Core Service Offerings: Service Sheet

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