Spotlight: Unlocking ESG: the strategic advantage for insurance providers in the SME market

Insurance providers risk missing a strategic edge by underusing ESG in SME underwriting. Integrating ESG data can boost resilience insights, improve risk modelling, and offer competitive market advantage, argues Sara Costantini at Crif.

Despite rising awareness around derived business benefits from environmental, social and governance (ESG) principles, findings from a new joint survey of SME insurance providers, carried out by Insurance Post in conjunction with Crif, suggest the industry views ESG more as a long-term aspiration for data integration, rather than an immediate operational priority. In a rapidly shifting risk environment this cautious stance amounts to a missed strategic opportunity.

As insurers confront new forms of volatility, from climate risk to cyber threats and geopolitical instability, the need to evolve beyond traditional rating models has never been greater. ESG offers a lens to better understand business resilience, and yet its potential remains largely undervalued and untapped.

Financial resilience is front of mind, yet decoupled from ESG

This suggests that while ESG is increasingly recognised as relevant, it is not yet fully embedded in day-to-day underwriting practice.

When asked which risk factors are most important in evaluating the resilience of UK SMEs today, insurance providers ranked financial security highest by a wide margin, cited by 76% of respondents. This was followed by claims history (61%), cyber risk (53%) and leadership (37%). Only 17% identified ESG compliance as a priority factor.

This decoupling is striking, particularly given emerging global evidence that businesses with strong ESG credentials often demonstrate greater financial resilience. ESG-aligned SMEs are seen to have more robust governance structures, more transparent operations, and are often better equipped to respond to disruption, from supply chain shocks to reputational risk events.

Slightly less than half (47%) of surveyed insurance providers currently use ESG in SME ratings at all, with just 12% reporting consistent integration.

This suggests that while ESG is increasingly recognised as relevant, it is not yet fully embedded in day-to-day underwriting practice. This represents a significant opportunity for progressive organisations to seize competitive advantage by accessing and integrating robust ESG data and using ESG business scoring and certification systems, now available in the market.

SME supply chains represent a hidden weak spot in risk assessment

The survey revealed a potential blind spot related to supply chains when insurance providers assess SME business continuity. Only 30% of respondents included supply chain resilience in their top five risk factors today. However, when asked to rank ESG elements that were most critical to SME resilience, 53% of insurers chose an ethical supply chain, making it the top-rated ESG linked factor.

This inconsistency points to the growing, yet underquantified risk exposure SMEs face through their supplier networks. From modern slavery concerns to environmental compliance failures, ESG-related issues in supply chains can have direct impacts on a company’s performance and insurability.

Assessing SME supply chains is inherently difficult, particularly in the absence of comprehensive public data. Reliable data that could provide better visibility is available – but access to it is still needed to enable insurance providers to better model this area of risk. 

Barriers to ESG integration: fragmented processes and data gaps

Over 53% of respondents said they would be more likely to integrate ESG into ratings if they had access to better public ESG data.

So, why, if ESG is widely seen as relevant, is it not more deeply integrated?

Firstly, the way ESG is currently measured varies significantly. Around 33% of insurers use in-house assessments, while 28% rely on self-assessment questionnaires. Others turn to external audits, public data or a blend of sources. Data gaps and lack of standardisation create challenges across the distribution chain, particularly for brokers, who are often expected to gather or explain ESG information to clients. 

Inconsistent tools and scoring systems increase friction, limit comparability, and can slow the insurance placement process. Secondly, data quality is a recurring concern. Over 53% of respondents said they would be more likely to integrate ESG into ratings if they had access to better public ESG data. 
 

 

There are solutions that offer insurers a cost-effective and frictionless ESG questionnaire, aggregated third-party and proprietary data sources, plus ESG scoring and certification. These tools can be shared with brokers, MGAs and insurers, standardising assessments, and improving accessibility. Clearer evidence of the correlation between ESG credentials and insurance risk was cited as a requirement before full integration of ESG data would be considered by 38% of respondents.

Crif recently completed a study of SME resilience, as part of its ESG Global Observatory report, which demonstrated that high ESG performing companies exhibit progressively lower risk to fail. Credit reports were overlaid with the results of Crif’s ESG self-assessment questionnaire, completed by the same companies.

The findings showed that ESG-certified companies have a 50% lower commercial risk profile than uncertified companies. The Observatory study also showed that companies with good governance scores demonstrated more timely payment behaviours. ESG-certified companies have 41% fewer days of average payment delay.

Crif’s ESG assessment, score and resulting business certificate is aligned with key global reporting frameworks and designed to cater to various industries, enabling benchmarking from micro-enterprises to multinational corporations. The Global Observatory report makes a compelling business case for the correlation between ESG credentials and insurance risk. 

A stark finding from the survey is the lack of incentives tied to SME ESG performance.

Incentivising behaviour

A stark finding from the survey is the lack of incentives tied to SME ESG performance.

Only 4% of insurers were very likely to offer discounts or policy incentives to ESG compliant SMEs. A further 33% are likely to do so, but the majority remain hesitant, with 43% unlikely, while very unlikely or never both received 10% of votes.

This is despite a strong consensus that incentives would drive engagement. Over 54% of respondents said that promoting ESG as a pathway to long-term resilience, lower risk and profitability would be the most effective motivator for SMEs. Just under 43% supported premium discounts, and 41% favoured ESG-focused insurance products.
 

 

It is clear that the will exists, but mechanisms are lacking. Creating tangible commercial benefits for SMEs that invest in ESG could be a powerful lever to accelerate adoption while also improving insurance providers’ own risk pools and fostering long-term customer relationships.

What the industry needs next

When asked what would most help SMEs place greater emphasis on business resilience, insurance professionals called for a mix of education, standardisation and better regulatory alignment.

Suggestions included:

• Stronger incentives for proactive risk management.
• Educational support tied to underwriting benefits.
• Resilience toolkits or free risk assessments.
• Evidence-based case studies showing the cost of inaction.
• Clarity around data and certification standards.

Insurers have the opportunity to position themselves beyond the payers of claims and as partners in sustainability and resilience, supporting SME clients to identify vulnerabilities and building long-term relationships.

This shift, from transactional insurance to strategic risk management is set to define the next phase of SME commercial lines’ evolution.

By embedding ESG data into pricing models, risk assessments and product design, insurance providers can make more accurate, future-oriented decisions.

From ESG theory to competitive advantage

ESG is increasingly seen as material to business resilience, but ESG data remains underused in many areas of the insurance proposition.    

By embedding ESG data into pricing models, risk assessments and product design, insurance providers can make more accurate, future-oriented decisions. It will enable them to offer brokers more consistent tools to serve clients and create opportunities to support and build lasting relationships with resilient, transparent SME clients, reducing portfolio volatility. Ultimately, the strategic application of ESG data will help to secure competitive advantage in a crowded market.

The question is not whether ESG matters, but rather, when the market is ready to move beyond theory and act. The window for significant first-mover advantage in the SME commercial lines market is open now. 

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