US companies lagging on ESG issues: AM Best

Companies and re/insurers in the US are lagging behind the rest of the world on environmental, social and governance (ESG) issues, according to AM Best.

However, the rating agency pointed out, the US is quickly catching up on ESG issues, especially since the election of President Biden and the subsequent US decision to re-join the Paris Accords.

Speaking at the VCIA conference in Burlington Vermont, Daniel Ryan, senior director at AM Best, said that companies in the US needs to be open-minded in terms of ESG issues. He pointed out that whilst many of these aspects are not regulated at present, they might be at some point in the future, and that US companies need to prepare.

“At the end of the day,” Ryan said, “ESG is an element that all of us are going to have to embrace, understand and move along with in the market. ESG has so many tentacles that could potentially be attached to things that, if you’re not paying attention to it, could be detrimental in the years ahead.”

Ryan added that there have already been examples of captives helping parent companies out with ESG risks.

He said that there are many captives out there already that provide solutions to help companies manage risk or exposure to risk, with wildfire being a good example.

“We’ve seen several captives that have already been called upon to step up after some of the events in California to fill a need in the programme where there was some capacity that needed to be filled, so they played a very important role,” said Ryan.

The same can be said for cyber, he added, saying that there was an uptick in cyber threats and ransomware during the COVID-19 pandemic that meant that some cyber insurers backed away from some risks, allowing captive insurers to step in to fill the void.

Commercial insurers might also be incorporating these ESG factors into their own decision making, Ryan explained. “Availability and affordability constraints might bring new opportunities for captives, especially those captives in the energy sector where they could be called upon to take on some of this reduced capacity on pricing challenges given their portfolios.”

Ryan also concluded that reinsurers might want to make sure that a captive’s ESG issues were aligned with theirs, especially as most reinsurers are publicly traded and have ESG guidelines that they have to follow on and report on.