ESG issues are gradually acquiring due importance in the insurance industry. ICICI Prudential’s Mr Judhajit Das gives a comprehensive view of what is happening in the ESG sphere in the Indian insurance industry.
The World Economic Forum’s Global Risk Report 2015 did not feature climate action failure among the top global risks. The 2022 edition of the same publication, however, ranks climate action failure as the number one long-term threat to the world.
Over the years environment risks have acquired priority and gained precedence over traditional economic risks. Integrating ESG factors into the business processes of a company have become mandatory and a necessary condition for sustainable organisational growth.
ESG risks vary from sector to sector. To understand the material risks pertaining to the insurance sector, Asia Insurance Review spoke with ICICI Prudential Life Insurance chief – HR Judhajit Das.
Insurance and ESG
Mr Das said, “The starting point is the material assessment of the various risks of the insurance business model to determine the major ESG focus areas.”
Environmental risks have assumed critical importance for the insurance industry, particularly for property and casualty insurers with increasing severity of climate change-induced risks. There is ongoing research on incorporating climate risk in underwriting for life insurers to understand the effects on mortality and morbidity.
Insurers also need to invest policyholder funds carefully and integrate ESG aspects into their investment management framework, as there are indirect environmental or climate risks associated with investee companies in their portfolio.
Globally, financial services companies use consumer data at scale to provide personalised product and service offerings. Companies need stringently to adhere to data privacy norms to protect consumer interests as well as the financial risk and reputation of their brand.
Governance-related risks are long-standing in the financial services sector. Trust in a financial services brand is the foundation for sustainability and any transgression of governance standards and ethical conduct erodes consumers’ confidence. Proactive and transparent disclosures allow companies to safeguard the trust consumers repose in them.
Boards and ESG concerns
Speaking about how ESG is reflected in the constitution of boards and how insurers ensure that board members are made liable for setting up and complying with the ESG concerns of the company, Mr Das said, “The risks and opportunities that ESG pose to a company are recognised by the boards of the companies, including those of insurance companies. Establishing ESG goals and monitoring performance is now integrated as a part of ensuring a sound and sustainable business strategy, necessitating board oversight of ESG initiatives and activities.
“While insurance companies undertake several measures to build the board’s ESG awareness, skill and knowledge, some others also conduct ESG-related awareness sessions for their board members.”
A few insurers have also constituted sustainability committees at the board level to monitor the impact of ESG initiatives.
ESG-compliant ecosystem and investments
Speaking about the short-term and long-term focus of an insurance company’s ESG policy Mr Das said, “It is a truism that good corporate governance leads to better reputation and stakeholder value.”
Indian life insurers are significant investors in Indian capital markets. Hence, to identify genuinely ESG-compliant investments that would support an image of being true to the essence of ESG is a challenge.
Mr Das said, “Indian life insurers need to ensure that the businesses they invest in run their operations responsibly. The challenge is to shield the portfolio from volatility emanating from unexpected ESG risks and safeguard the returns for policyholders.
“Indian life insurers can begin their ESG-compliant investment process through a responsible investment framework which can guide them in their investment decision-making process.”
Curbing unhealthy sales practices
Life insurance has traditionally been a ‘push’ product in sales and this comes from incentives that drive unhealthy sales practices. To achieve true ESG compliance, the industry would have to undergo a 360-degree transformation to bring about a change in the sales approach and product design as well.
Mr Das said, “The Indian life insurance industry is geared up for this transformation. We are regulated by the Insurance Regulatory and Development Authority of India, which ensures the development of the sector while safeguarding the interests of customers and policyholders.
“All insurance companies must ensure compliance with regulations in the interest of customers and policyholders. We have a product suitability matrix to ensure the right product is offered to customers based on multiple parameters like life stage needs and risk profile.”
He said, “Customers belonging to vulnerable segments are offered specific products, specially designed micro-insurance products targeting socially and economically weaker sections, through specific distribution channels.”
Technology helps
The company has implemented a customer grievance redressal and protection of policyholders’ interest policies. Besides, have in place a policy on insurance awareness and customer education for increasing awareness about insurance products in a simple and lucid manner, for potential and existing customers.
Speaking about the customer on-boarding procedure of the company Mr Das said, “Technology solutions introduced have enabled the company to conduct real-time know-your-customer verification and automate application form filling by using optical character recognition. To enable a personalised engagement for customers purchasing life insurance online, we have introduced video-based purchase assistance allowing our customers to engage in instant video-connect with our insurance expert. “
As the global population becomes more tech-savvy and environmentally conscious, climate change and environmental risks get top priority. Hence, it is important for brands to integrate ESG factors into their business model. A