Spotlight: The ESG opportunity: insurers as partners in SME resilience

Insurers and brokers look set to play a pivotal role in ESG education and risk management – and potentially, there is a role for more specialist products and incentives to reward firms that demonstrate best practice, writes Rachel Gordon.

Work around promoting ESG among smaller companies in the UK is gathering momentum and the expectation is that, as knowledge grows, so will demand for both advice and tailored insurance.

Currently, as shown by the Insurance Post business resilience survey conducted in conjunction with Crif, ESG is not seen as business critical, with many respondents only seeing it as a “slight, but not material factor” in terms of SME resilience and profitability.

Certainly, among some brokers and indeed their clients, there is a knowledge gap. While national firms may be offering expert consultancy by ESG teams, some smaller firms are offering little advice. But times are changing.

Bridging the knowledge gap

Global brokers have dedicated ESG teams, but their focus is on large, complex clients. That leaves a gap for mid-sized firms and growth businesses who also need expert guidance but often get generic advice

Jonathan Evans, founder, Sustain Insurance Brokers

Sustain Insurance Brokers launched in 2021 as “a modern ethical brokerage that is commercially astute and value led”, according to founder Jonathan Evans.

He says: “ESG isn’t just a differentiator for us, it’s foundational. As a certified B-Corp, we’ve hardwired environmental and social responsibility into our business model. We believe clients increasingly want to work with partners who reflect their values, and ESG provides that alignment as a measurable approach to doing better business.”

As Evans says: “Global brokers have dedicated ESG teams, but their focus is on large, complex clients. That leaves a gap for mid-sized firms and growth businesses who also need expert guidance but often get generic advice. That’s where we have found Sustain can best assist – by combining the insight and technical capability of a major broker with the agility and attention of a specialist adviser.”

But brokers without a specialist background can now beef up their knowledge from a growing pool of resources.

Trade body the British Insurance Brokers’ Association is focusing on ESG and has produced a guide on how brokers can create their own policies, which are also suitable to pass on to clients.

Insurers are also raising their game and Aviva is one of the most active in advancing ESG support for SMEs. Spokeswoman Karmen Ivey says: “Smaller organisations are increasingly being asked to articulate their ESG posture alongside larger peers – making education and training more important than ever.”

Much work is being done through Aviva Risk Management Solutions (ARMS), which brings “cross-class expertise and insights in climate risk exposures and mitigation strategies across a wide range of industries and geographies, including renewables, property, construction, motor, liability and financial lines”.

The insurer has also developed natural hazard modelling capabilities to identify and remediate customer exposure to high risk, climate-related events such as flooding, changing weather patterns, subsidence and fire.

She adds that on-site surveys also provide practical remediation measures and that Aviva promotes discussions “around B-Corp certification and the ISO 14001 Environmental Management accreditation, helping clients align with best practice in environmental governance”.

Aviva has also produced Loss Prevention Standards, providing detailed guidance on managing sustainability risks, including those related to flooding, wildfires, the use of renewable energy sources and greenwashing risks for company directors.

“We’ve found our brokers to be highly receptive, curious and forward-thinking when it comes to ESG. Partnering with them not only strengthens their understanding but also helps us extend our reach and impact across a broader client base.”

Smaller organisations are increasingly being asked to articulate their ESG posture alongside larger peers – making education and training more important than ever

Karmen Ivey, GCS (Global, Corporate and Specialty), Heritage, Aviva

Further tools include Sustainable Business Coach, specifically for brokers, to help boost their understanding, and align their own companies with ESG principles. It also offers the Sustainability Resources and Reporting hub, which is based on Aviva’s published ESG polices, that can also inform brokers and be adapted to guide their clients.

Axa UK is providing practical support and knowledge. Dougie Barnett, director, commercial customer risk management and sustainability, says working with brokers is a priority and that there is plenty of advice on offer.

“Our website is packed with useful information for small businesses, including on ESG issues such as employee wellbeing.

“Meanwhile, in 2023, the Axa Climate School learning programme was rolled out to our employees worldwide to help them better understand climate change and its impacts. This comprehensive online learning tool ensures everyone has a good understanding of the current and potential future effects on our planet and what can be done at a local and global level.”

He continues: “We’ve made four of the eight modules available free of charge to our brokers and their clients to help them implement changes in their own businesses that can make a real difference.”

Some are also looking at wider sustainability issues. Zurich, for example, has worked recently with the Federation of Small Businesses on a net-zero report.

The road ahead – incentives and challenges

Education is crucial, but is there scope for insurers to go further and tailor specific products for ESG-compliant SMEs?

 

The survey asked how likely providers were to offer pricing discounts or other incentives. A majority said they were unlikely to do this, but this is not set in stone. In fact, almost 40% of large insurers said they would be likely to provide these.

As Evans says: “Insurers are recognising that firms with strong ESG credentials, especially around risk governance, climate resilience and supply-chain ethics, tend to be more robust, lower-risk policyholders. 

"That said, underwriting hasn’t yet caught up fully with this reality. There’s huge potential for sustainability metrics to become more integrated into risk selection, pricing, and capacity decisions. We’re actively working with insurers and MGAs to help them understand and value these behaviours more clearly.”

He says he expects to see “more nuanced product development, especially for sectors where ESG impact is material such as construction, energy, logistics and tech. Forward-looking MGAs and capacity providers are already exploring ways to reward good governance, environmental responsibility and social impact”.

He adds: “Looking ahead, we’re deepening our partnerships with insurers and MGAs who are serious about ESG. That includes collaborating on new product development, underwriting frameworks that better reflect sustainability performance and thought leadership that helps move the market forward.”

Some smaller businesses do, however, see strong ESG credentials as a clear business advantage and ultimately it will become the norm for all businesses

Paul Anscombe, CEO of broking and risk management company, Seventeen Group

But this is not going to happen overnight. Paul Anscombe, CEO of broking and risk management company, Seventeen Group, says while public sector and large companies have been the focus, the SME sector is seeing a slow cascade effect. He adds: “Some smaller businesses do, however, see strong ESG credentials as a clear business advantage and, ultimately, it will become the norm for all businesses.

“While it would be great to see insurers reward those policyholders with a strong ESG culture, it must be remembered that insurers need to set rates based on risk and experience and so will need evidence to support the premise that strong ESG equates to lower claims.

And as Anscombe adds: “The assumption is companies who embrace ESG have management teams who are proactive and responsible and so this must equate to a better risk. But proving a direct link between ESG engagement and insurability is difficult, given the multitude of other rate factors involved.”

A further issue is that large brokers will be more accustomed to charging fees for consultancy – whereas smaller brokers will be remunerated via commission, which can limit the scope of ESG advice they are able to provide.

Anscombe says more evidence will be needed: “While ESG may relate to business risk, there is not yet a clear link that translates into tangible benefits for clients in terms of easier placement or better pricing of their insurance programme.”

 

The survey asked what would encourage SMEs to embark on a sustainability journey. There was a pragmatic mix of recommendations, including discounts, promoting a long-term vision of resilience, and launching an industry-wide campaign. These ideas provide food for thought and suggest a potential role for insurers to collaborate, perhaps with ABI involvement.

One challenge to ESG – and to diversity, equity, and inclusion (DEI) are political moves in the US, where the current government led by president Trump has been unsupportive of sustainability.

 

The survey found that most respondents believe the current political climate in the US is having a negative impact on ESG momentum. However, many believe this is only likely to be short term. Eddie Ferrão, director with Langton London Brokers, explains: “Global momentum is shifting, even as Trump rolls back ESG in the US.”

He adds that ESG “remains overly complex and often designed for large corporates. SMEs lack the resources to navigate frameworks without help, and shifting politics makes it harder to know what really matters.”

But this does create a role for brokers and insurers to offer “clear, scaled guidance to SMEs – cutting through complexity and helping them take practical ESG steps, even as political signals grow more uncertain.”
 

SMEs lack the resources to navigate frameworks without help, and shifting politics makes it harder to know what really matters

Eddie Ferrão, director, Langton London Brokers

Conclusion

There is buy-in for ESG from both insurers and brokers, offering an optimistic outlook for the future. More work is needed, and this includes access to better data to support product development and further analysis of the risk benefits.

This must all be underpinned by a determination from the insurance industry as a whole to position itself as a long-term value partner to SMEs, helping them build resilience through ESG, rather than a short-term safety net.

Sponsored content