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ESG considerations increasingly factor into D&O underwriting

ESG considerations increasingly factor into D&O underwriting

Insurance buyers can expect increased due diligence from insurers around their management of environmental, social and governance risks, which may affect coverage and pricing.

While the integration of ESG factors into underwriting remains uneven, it is playing a growing role in directors and officers liability insurance, experts say.

Marsh LLC last October introduced a directors and officers liability initiative in which its clients work with various international law firms to review or validate their ESG frameworks, and, then, subject to underwriting, will be considered for preferred D&O policy terms and conditions on ESG-related exposures. This could include more favorable pricing, policy retentions and limits.

“To the extent we can say this is a better risk quality, that is an advantage,” said Amy Barnes, London-based head of sustainability and climate change strategy at Marsh LLC.

At least four D&O insurers are participating in the program, including Hartford Financial Services Group Inc.

The Hartford wants to make sure it is deploying its capital to businesses that are taking ESG issues seriously, said Ziad Kubursi, its New York-based head of financial, executive and transactional liability.

“This gives us the confidence that they are going the extra step to engage with these law firms, understanding the environment around ESG and how they can improve their ESG operations and initiatives,” Mr. Kubursi said.

If a company is committed to advancing ESG initiatives, Hartford will provide coverage enhancements such as sub-limits for ESG-related books and records inquiries and investigations around ESG disclosures, he said.

“These are critical to companies, because it’s typically the board of directors and officers that are impacted when shareholders, customers, clients and investors are looking at whether or not they are compliant with these requirements,” Mr. Kubursi said.

With private companies, often insurers are more comfortable if policyholders have a director and officer who is accountable and responsible for all ESG matters, said Ralph Banbury, London-based management liability underwriter at CFC Underwriting Ltd. 

If a private company is private equity- or venture capital-backed, the financial institutions typically do a substantial amount of due diligence themselves before investing their capital, Mr. Banbury said.

To the extent that companies can demonstrate that they are on top of their ESG, they could see some type of credit. Each account is different, but “if you can gain significant satisfaction and comfort around ESG, it will be beneficial to the overall underwriting and revision of coverage,” Mr. Banbury said.


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